Thursday, December 21, 2006

Somebody pinch me

I haven't posted for a while because, frankly, there's been little of interest and I'm more preoccupied with Christmas - oops, I mean the holiday (we must be politically correct after all). Yes, there was the comical reiteration that Zune sales were going as planned - while simultaneously speculating about increasing the marketing expenditure, more bad news on the search front, another [yawn] partnership announcement, more fallout from the Novell deal, and of course more legal and product bug problems (too many to list there). But that's mostly business as usual and hardly noteworthy.

What is new, is that after breaking the uptrend and seemingly poised for another trip to the basement, MSFT stock suddenly reversed, and managed to close above $30 - something it hasn't done in 2 years. In fact, it's currently threatening to take out the high on what is now a 4-year old trading range. Of course, before we get too excited, we should note that this didn't happen in a vacuum. Getting here, first took a trip to the bottom of that 4-year range (following management's guidance screwup), and then an additional $40B commitment of [shareholder] cash to a tender (which subsequently failed) and an increased buyback. Still, if you held through all that and ignore the implications that MSFT can't buy its way out of trouble forever, you're currently poised to receive an S&P-like performance for the first time in 4 years (ignoring, of course, that you took far more risk, incurred more volatility, and made less in dividends to get it):

Speaking of dividends, I see that management has decided to reward long-suffering shareholders by not increasing the dividend at all. I've posted before on the unmitigated joke that is MSFT's dividend policy, but that's even more true given the recent runup which has dropped the yield to just 1.33%. It's hard to decide what to make of the Board's decision to leave the dividend alone when it's under-market and the stock has [still] badly underperformed the S&P since '00 - to the tune of some 50% . If you want to be charitable, I guess you could say that a) they believe that money spent on buybacks is more effective (difficult to support since they clearly have enough cash to do both), or b)they're bullish about the year ahead and think that the stock can continue its recent stronger performance w/o further assistance. On the less-charitable - but likely more realistic - side, you could conclude that a) they think the stock has gotten ahead of itself and will drop, thereby increasing the yield, b) they're momentarily giddy over performing at the market for once (and haven't figured out that it required committing $40B of additional shareholder cash and even then, including dividends, you'd still have been better off holding the SPY's vs MSFT), or c) they couldn't care less and don't intend to ever provide even a market-average dividend (consistent with the track record since its inception).

Meanwhile, MSFT's Dare Obasanjo is openly blogging that he used the $30 breach to bail on all his options. He's entitled, of course (assuming, that is, that as an insider - albeit a non-executive one - there's no SEC restriction about doing so publicly), but it doesn't say much for his optimism in the company's future - as a commenter on his post noted. Then again, neither does the level of [executive] insider selling generally. It seems that many, especially in MSFT's leadership, are happy to simply give up on ever driving value for shareholders. Instead, they seem content to run the company for their own personal enrichment, while throwing shareholders just enough occasional bones to keep them at bay. It's almost like they got used to a certain lifestyle back in the 90's - when the company used to perform for shareholders - and now think they're entitled to that for life. If so, wake up. To quote a Neil Diamond song (why, I'm not sure, but it popped into my head), "Used-to-bes don't count anymore..They just lay on the floor...Till we sweep them away.". Translation: Stop living off your former glory - that's in the increasingly distant past. Either perform now for current shareholders or make room for a leadership team who can/will. The S&P index is the "average" of a broad cross-section of companies. If you can't even perform at that average more than once every 4 years (I.e. are consistently "below-average"), you have no business cashing multi-million dollar pay packages and splitting $1B bonuses.


  • I know it's off topic, but if you're in Redmond, you'll appreciate it. Did you notice the total lack of executive communication on the recent natural disaster in Seattle and the ensuing power outage. Our execs have no issue hitting up their employees for the Giving Campaign or Hurricane Katrina...but try to get them to pony up for helping employees without power for more than 24 hours...crickets. How about a "we have generators, heat, cots, BBQ grills and shelter for employees and their families without power if you want to come to campus"...nope. Nothing. We completely suck.

    By Anonymous Anonymous, at 11:16 PM  

  • Lies, damn lies, and statistics

    The year-to-date chart you posted in your blog is interesting and, of course, reinforces your point that perhaps Microsoft senior management is asleep at the wheel when it comes to the stock price. Ironically, GOOG, the company that many like to compare MSFT against, actually fared slightly worse in the same period--underperforming both MSFT and the S&P 500.

    A 3-yr plot of MSFT, GOOG, and the S&P 500 is dominated, of course, by GOOG's introductory and meteoric growth. That's not really a fair comparison in that in the last three years, GOOG and MSFT were in vastly different stages of their life-cycles. On the other hand, it shows that MSFT is leaving (or missing) some opportunities for others to sieze. I don't think that that is a bad thing and I'm not sure that even if MSFT had done everything that GOOG did during the past three years that they would have seen the same percentage growth, because it would be diluted by all the other MSFT operations. Personally, I'd like to see MSFT focus and excel rather than try to be all things in all markets.

    A 10-yr plot of MSFT, GOOG, and the S&P 500 shows an interesting reflection. GOOG's rise looks almost identical to that of MSFT, only nine years later. Time has yet to tell what the future will bring to GOOG.

    It's possible that they, too, will rise a bit more until settling down to a more sustainable, S&P-ish growth rate. We'll see, but as anyone who's watch the markets rise and fall knows, what goes up must come down.

    By Anonymous Anonymous, at 2:10 PM  

  • Dare isn't an insider. Insider trading rules only apply to officers, directors, or holders of more than 10% of a firm's share's...

    By Anonymous Anonymous, at 3:52 PM  

  • "Dare isn't an insider. Insider trading rules only apply to officers, directors, or holders of more than 10% of a firm's share's..."

    Actually, as an employee he is an insider and I believe the rules apply to any such person who is in possession of material non-public information (i.e. not just officers and large holders). Again, I'm not saying that he was, but he might want to be careful about publicly disclosing his personal trading decisions. More importantly, imo, putting it on his blog was a dumbass thing to do regardless.

    By Blogger MSFTextrememakeover, at 4:15 PM  

  • He is an insider, but it is insider trading only if he traded on non-public information. Also, what difference is there between executives who disclose through proper channels that they are selling, vs dare, an ordinary employee selling? I see no difference. Also, just the fact of him selling does not mean anything. If you read his blog, he has a lot of passion for microsoft and it's products.

    By Anonymous Anonymous, at 5:08 PM  

  • The track record of rampant insider selling by MS execs cashing out over the last few years was one reason I lost faith when I was an employee. When I was looking at offers from other companies, I always checked to see what the insiders were doing. In the end I joined another big tech company where the company officers and directors were holding and/or buying much more than they were selling. I think this signals commitment to the company and the shareholders, whereas the behaviour of the MS execs signals only greed and self-interest.

    By Anonymous Anonymous, at 3:24 AM  

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