Wednesday, February 28, 2007

Limbo, limbo, like kimbo

A limbo is, among other things, a West Indian dance in which the dancers keep bending over backward and passing under a pole that is lowered slightly each time. Substituting the stock for the pole (or bending over for that matter), that sounds remarkably like the fate of MSFT shareholders. Now, if you didn't do too well on your college SAT here's your chance to redeem yourself. Given the series: $31-$30-$29-$28, what might logically come next? Okay, maybe that's not quite SAT material - but you get the drift.

So, another day and another MSFT selloff - nothing surprising there. Far more ominous, was the fact that the market rolled over with it, although a computer glitch may have exacerbated things(thankfully not a MSFT one for once). At this point, it's unclear whether any of the MSFT stock action can be blamed on that (it apparently impacted the DOW 30 of which MSFT is a member). Nevertheless, MSFT managed to do worse than every tech stock I track with the exception of AAPL - and that's on top of the severe selloff YTD. While I'd like to be more constructive, there's no denying that MSFT's chart is now completely broken technically and screaming "Sell". A full 1/3 retracement of the June '06 to Jan '07 run has been completed and yet the stock is still showing no signs of firming. So if the market continues rolling over, odds favor MSFT eventually testing (and likely dropping) the 200 day moving average which is currently sitting at $26.78. If things get really bad, expect a full 2/3 retracement to ~$24.74. But hey, look on the bright side: by then, the dividend yield will be closer to market.

Reviewing the company-specific news for hints as to why the stock performed so poorly, there wasn't much out there. Sure, having been warned that Vista expectations were too aggressive, the market is being its usual bi-polar self and now factoring in an Edsel-class failure (or is that - shudder - Windows Me-class?). That seems overstated, but there are some pretty horrible reviews out there including ones where people are going back to XP from Vista. Ouch! A lot of that appears to be teething issues with 3rd party drivers and it's still fairly early days in that regard. Also, I haven't used the product yet so will withhold judgement. However, I think it's fair to say that Vista isn't currently the breakout success that we might have hoped for when Ballmer said "It'll be great, bet on it". On the other hand, maybe he meant just a small bet - like five bucks between you and a pal - versus say, buying or continuing to hold MSFT stock.

Looking around for other possible catalysts, some journalists were rehashing the news that broke last week about GOOG apps and the threat to Office. Yawn! However, if you were an investor who just got back from a quick trip to Paradise Island, I'm sure the news didn't make you want to rush out and buy MSFT. As an aside, the fact that MSFT didn't take a direct $1-2 hit on this news - and GOOG rally $10-$20 - is interesting. That wouldn't have been the case even six months ago. Unfortunately, that's likely a reflection of the massive run GOOG shareholders have already enjoyed versus any renewed confidence in MSFT.

That left the only real company-specific news being Ray Ozzie's presentation today at the Goldman Sachs Technology Investment Symposium. I had originally intended to cover that as a post topic on its own, but quite frankly I didn't hear a lot that was new or interesting. If this was meant to be MSFT's Software+Service strategy equivalent of the Sermon on the Mount, it fell short - and that was despite [perpetually wrong on MSFT] analyst Rick Shurland's repeated attempts to throw Ray a slow pitch in hopes he would knock one out of the park. He didn't. It's not that I can fault anything Ray said per se, it was all reasonable enough. It's just that he didn't say much that was concrete wrt plans or timeframes and it all sounded pretty conceptual at this stage - which is concerning if you were hoping this was the Extreme Makeover "reveal" versus a status update on the state of the industry. Finally, his delivery was almost as coma-inducing as Gates - which didn't help. I have to confess that I was expecting more from Ray, and maybe others were as well. Plus, comments like GOOG giving MSFT a "wake-up call" or:

There is a level of data center and infrastructure that we continue to need to build, he said. This is just going to be a continuous investment.

is hardly stock Viagra, especially when folks look at the fact that GOOG actually makes money on this "continuous investment" effort whereas MSFT doesn't - at least so far.

So, on the margin, maybe that was enough to explain the stock's poor relative showing on the day. Or maybe not. Regardless, the action doesn't bode well for shareholders.

Update: Eweek's pre-conference view on the 10 questions Ray should have answered:


  • Seems pretty clear that the stock was simply overpriced after its big 35% runup over the last several months. People just got too excited over Vista I guess.

    I understand your passion for wanting MSFT to improve, but I don't quite understand your continued frustration about the performance. Aren't you used to it yet?

    By Anonymous Brian, at 9:44 AM  

  • "Aren't you used to it yet?"

    Does being used to it make it desirable or acceptable? It's not like MSFT has underperformed for just a few months or even a year or two - it's underperformed for most of this decade.

    By Blogger MSFTextrememakeover, at 10:29 AM  

  • "used to it", as in "sit down and take what we give ya".

    This site, is from an investors viewpoint, as in, the people who own the company.

    No, I don't think that we should "get used to it", I think that major management shakeups should occur.

    By Blogger Joe, at 1:44 PM  

  • Maybe MS should add a link to its executive presentation page that mimics the moneycentral "rate this article" feedback. Wouldn't that be a hoot?

    By Anonymous Anonymous, at 2:15 PM  

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