Why did MSFT announce early? I hear a lot of the panic is because MSFT decided to pre-announce this morning rather than wait til the afternoon. Last time I remember a company doing this was Morgan Stanley trying to prove the company wasn't going out of business. And that still turned out poorly.
MSFT is dragging the market down today. The stock is down 9% right now, bouncing off a new 52-week low at 17.19.
MSFT is blaming weak Windows sales on weakening PC demand in the economy as well as increased sales of netbooks. This is contrary to Apple's report yesterday in which they blew away Mac unit sales expectations once again.
First, I wonder at what point MSFT will begin acknowledging Mac sales as the reason they are losing sales. It took a while for MSFT to acknowledge the iPhone's success over Windows Mobile.
Second, this may not just be people switching from Windows to Mac. This may be representing the different demographic markets of Windows and Mac. Mac users are generally higher income earning, so they may not be hurt by the recession as much as Windows users. Much of the commentary today is that Windows users are trading down to netbooks in this environment, which are substantially cheaper than traditional PCs. MSFT earns smaller Windows royalties on netbooks than on PCs.
Third, there may be something happening with customers simply waiting for Windows 7, which is expected in 1H 2009. This would result in decreasing Windows sales until Windows 7 is released.
The point I was making is if Photoshop was open source then someone would alter it to run on Linux. As you stated, the incompatibilities are developers choices to increase profits at the expense of the users freedom. OS gives people the option to alter it to run however they like. Even an open document format would be nice...
I hear of plenty of people not running Linux purely because they can't use certain applications. The most prominent of which is Photoshop. If Photoshop could be run on Linux then I'm confident there would be a dramatic rise in the Linux install base.
So you can see why Google have funded better WINE support for Photoshop. I'd rather they funded GIMP development but it's still very welcome support from Google.
I bought some MSFT a day after the Yahoo deal was proposed because I see a lot of value in this stock. This should be a long term play for me, like most of my trades, and I feel pretty comfortable holding on to MSFT throughout however long the YHOO deal takes. I also add that this is my first entry into this stock and I may add more in the future.
I'll talk valuation first. Right now MSFT P/E is a paltry 16 with a forward P/E of 13. I believe this is very cheap for a company who's earnings grew 18% last year and are on track to grow at 30% this year if they just meet analyst expectations. So far they have beaten analyst estimates for the first two quarters of their fiscal year which now makes it six consecutive quarters of beating the estimates. At the current price their valuation is at the same level or cheaper than many consumer staple stocks with much slower growth rates like Altria, Proctor & Gamble, or Coke. This seems completely wrong to me. Basically I believe MSFT is too cheap compared to their growth.
So MSFT is trading like a business that isn't growing, but one thing everyone should also understand is what business MSFT is actually in and what you are actually buying if you buy MSFT. An investment in MSFT is essentially a bet on the worldwide growth in computers and the software that runs it, Windows and Office. I'm sure almost everyone is aware that Microsoft software runs about 90% of all the computers out there and I don't really see this changing much in the next couple of years. I believe Microsoft will continue it's domination and also grow in foreign markets despite piracy concerns and I expect profit outside of the US to grow quickly as the rest of the world modernizes. Everyone should understand that Windows and Office is what makes up the lion's share of MSFT profit and this is really what will ultimately move their stock, everything else is just icing on the cake.
We obviously focus on the Xbox 360 and their games here on the SimExchange and it is a positive that their entertainment division may finally make a profit this year. However I can only consider it a bonus unless the 360 somehow starts to dominate the console wars and becomes a much larger share of MSFT.
I'll also add that I believe a YHOO acquisition would be positive long term and their bid will ultimately be successful as I speculated in another thread. This would greatly increase their presence on the internet and the fast growing online advertising market, a business that is still in it's infancy. A merger should provide avenues for growth for a long time to come and a combined MSFT/YHOO would give them much more leverage with advertisers.
Finally, I have to caution anybody still reading that a lot of this is just my opinion and I could be wrong on any number of points. I may have made a bunch of money here on the SimExchange, but I am just an amateur investor in the real money markets struggling to figure out how to deal with this very difficult market. I obviously hope that I am right but I've been wrong a lot lately, so caveat emptor.
You mentioned you are long MSFT. Would you share your thesis here? Are you long for the Entertainment division (Xbox 360 & games)? What are the catalysts you are looking for here?
My belief is that the YHOO deal will dominate the trading in this stock for a while. Standard merger procedures are to long the target and short the buyer. Of course, Karen Finerman suggested a Texas hedge (buy both the acquirer and the target). She also has taken a position because she believes MSFT now qualifies as a value stock at these levels.
The value is compelling, but I don't see any kind of short-term upside catalyst. The mood on the Street right now is bullish on basic materials and bearish on tech. I would think there are better places to put money now. Are you holding this as a long-term play? Are you expecting tech to turn soon?
Any thoughts here on the big rally in MSFT shares yesterday (supposedly in line with the Halo 3 release)? I would think Halo 3 is laregly priced into the stock already as almost everyone is expecting something like 4 million sold in the first 2 months.
The bigger news here is the supposed Facebook deal 3.5%-5% of the company at $10 billion. It seems rather expensive, but it could be a small price to pay to block a Google acquisition in the future. Social networking is but one battleground for MSFT vs GOOG.
An interview with Neil Thompson, senior regional director for the UK and Ireland at Microsoft's Entertainment and Devices division. Quite an interesting read, but nothing real new in it.
1
Also, do you think MSFT is going to keep chasing after YHOO? That's been the main factor with this stock for too long.