4th Q Financials
...when can we see you start to turn the corner and at least track towards the aggregate overall search market?
He went on to point out that MSFT's guidance for the division could have been accomplished just via the expected lessening impact of access business declines and the display business tracking the market. In other words, where the heck is the search advertising upside? That of course got a long-winded non-answer from MSFT CFO Chris Lidell. Apparently, '07 is yet another "transition" year for search - just like '06, '05...well, you get the picture.
Last, we have Home and Entertainment which was barely referred to at all in the earnings report or subsequent conference call. They did say that Xbox 360 shipments managed to meet the 5M units previously forecast (though shipments don't necessarily equal sell-through we should note). Oh, and they doubled the loss on almost double the revenue - nice to know that they managed to keep that linear. But beyond that, nada. Call me jaded, but when MSFT stops talking about its heretofore bragging poster child, that suggests there's trouble - which I take as sales being weaker than expected. Hopefully, there will be some more color at the upcoming analyst's meeting. At this point, it's totally unclear to me how Xbox will ever return the funds invested to date far less be a wise business investment. Of course, that doesn't stop Ballmer from calling it "one of the greatest creations of shareholders value ever". Perhaps it's just me, but what good is latent shareholder value creation that isn't reflected in the company's market cap, isn't driving earnings but is detracting from them? I guess you could argue that without Xbox, MSFT's top line growth would be even more anemic - which is true. But what good is profitless growth? Unfortunately, of late, Ballmer has been repeatedly quoted talking about "revenue, revenue, revenue". As an investor, I'm interested in healthy revenue growth. But I'm a lot more interested in driving earnings - something MSFT has lagged badly at for 5+ years.
Finally, for fun I looked at headcount stats since they were broken out in the earnings press release. Company-wide, headcount was up a whopping 16% despite % change revenue growth of just 11% and % change operating income of just 13%. Here are the relevant numbers by segment:
Client: 13% headcount growth on 9% and 8% respectively.
Server: 11% headcount growth on 15% and 31% respectively.
IW: 18% headcount growth on 5% and 3% respectively.
BSol: 10% headcount growth on 17% and 114% respectively.
MSN: 44% headcount growth on -2% and -119% respectively.
Mobile: 24% headcount growth on 44% and 103% respectively.
H&E: 19% headcount growth on 36% and -160% respectively.
Tell me, how many companies have the luxury of growing headcount faster than their growth rates and irrespective of whether they're even making a profit? And this is on top of the unprecented headcount increases since '00. Well, in the Alice-in-Wonderland world that is MSFT business management and accountability, apparently the answer is most. And note that the worst sink holes are also some of the biggest % headcount abusers. No wonder income continues to lag revenue growth badly, as it has for more than 5 years now, and the stock continues to flat-line along with it.
FYI - I'm still reviewing the buyback announcements and will post on them when I have a better understanding. For now, the Dutch auction seems about as useful as RPN on a calculator - but I know some swear by the latter so I'll dig into the former before commenting further.