Microsoft: Investor Day Leaves Analysts Lukewarm

by: FP Trading Desk July 27, 2008 | about stocks: MSFT    

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During its investor day on Thursday, Microsoft Corp. (MSFT) reiterated its intentions to push further online search. This is a continued effort that left analysts lukewarm, and guidance unchanged.

Microsoft sought to persuade investors that continued spending in its unprofitable Internet business will pay dividends in the long term. The march ahead is not rosy though, even in the words of Steve Ballmer, Microsoft's chief executive:

We're going to have to ante up in a significant way to even be in this game.

Mr. Ballmer repeated that it had shelved plans to buy Yahoo! Inc. (YHOO) but stressed the importance of winning the search game, a crucial sector in which his company languishes in third place worldwide. Mr. Ballmer offered little specific insights on how he would do that though. Last week, the company announced $500 million of additional spending in search for 2009, but didn't say how the money would be spent.

Analysts were unfazed by the presentation. RBC Capital Markets' Robert Breza wrote:

We believe the race may have already been won, and Microsoft's strategy to win in search may counteract the strategy for financial success.

The analyst's concern is that Microsoft will now have to either enter a costly acquisition drive, or invest massively internally to stand a chance to compete in search. He kept his price target unchanged at $30, considering Microsoft's "otherwise good top-line growth."

Goldman Sachs was neutral on the presentation with analyst Sarah Friar writing that it was difficult to see why the stock would move rapidly either way. She pointed out that Microsoft benefits from strong defensive opportunities in the weakening macro-economic environment.

She wrote:

Microsoft has some very compelling opportunities (SharePoint, SQL Server, Windows Server 2008 wth HyperV virtualization, etc.) and should prove more defense in a tougher spending environment.

Goldman Sachs is unrated on Microsoft.

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This article has 3 comments:

  •  
    Jul 27 02:05 PM
    With Kevin Johnson departing Microsoft it appears a Yahoo acquisition has stalled.
    Reply | Link to Comment
  •  
    Jul 27 08:45 PM
    Am I the only one who believes Ballmer
    deliberately talks MSFT stock down every
    time he speaks. He never offers any positive
    guidance and no hope for the next 2 years.
    Why is this clueless b##stard still in charge?
    Reply | Link to Comment
  •  
    Jul 28 10:05 AM
    I think we will know in about six months how the strategy is shaping up. I agree that there is no new information except that Kevin Johnson's leaving allows Microsoft to perhaps refocus on its core. The downside is that if they lose ground in their core business, then they are in trouble. We have to give Ballmer six months of post-Gates to craft his own strategy and start having his own imprint. Time will tell.. Six months will be a good window to assess the strategic focus.
    Reply | Link to Comment
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