MSFTextrememakeover

Friday, June 15, 2007

Some days you really have to wonder...

Why any of us continue to hold this stock. For example, here's the list of equities I track on a daily basis:


Notice anything unusual there? That's right, of every stock I track, only MSFT was down today. Off .1% while the NAS is up a full 1.05% - and that's despite already under performing the NAS by ~6%+ year to date. WTF?

Reviewing the news, nothing particularly stands out as a likely cause for today's under performance. Nevertheless, the price action speaks for itself and volume is significantly above-average - so you can't write it off as meaningless. Now, in fairness, it was a triple witching day and that often causes some aberrant behavior. While that might explain the higher volume, why was MSFT the only issue from that fairly long list who was unable to close in positive territory? Sure, any stock can have a bad day, but we see this kind of action in MSFT repeatedly.

In the absence of material earnings acceleration and/or other investor-generating interest, there just doesn't appear to be any sustained incremental demand for MSFT whatsoever. Even a rare "bullish" PC analyst that I saw recently, recommended just about everyone but MSFT to play the trend - his specific worry being the long-term adverse impact from GOOG. Recall that with Vista, the new Office, etc. this was meant to finally be MSFT's big year. So far, for investors, it's been a bust. MSFT continues to be a piñata that exists purely to entertain large funds and institutions, who proceed to whack it up and down all day, every day - disgorging 10's or even 100's of millions of dollars for themselves in the process off fractional per share moves, while the overall direction remains flat and long-term holders continue to make nothing.

Current management appears to be mostly resigned to this state of affairs, even helpfully refilling the piñata every once in a while with some fresh shareholder buyback money and taping up the seams when it looks like maybe it's going down for the count. Then the Wall St. game starts all over again. As long as leadership continues to receive massive share and option grants for free, institutions continue to redeem those shares for cash in exchange for unfettered access to the daily piñata spoils, and shareholders continue to underwrite the cost via continued under performance without calling for heads to roll either at MSFT or at those institutions holding it, then life is good. MSFT's leadership can continue to run the company - as they have for this entire decade so far - as their private fiefdom and for their personal enrichment versus as a public company charged with rewarding its shareholder owners. And given the totally lackluster reception of Vista so far - at least in the consumer market - despite repeated Ballmer promises that it "would be great - bet on it", combined with continued reckless spending, it doesn't seem likely that we'll see earnings improvements that might drive [new] investor interest any time soon. Additionally, we're heading into MSFT's fiscal year end when, among other things, grants and options get set - and you know MSFT loves to game those to be as low as possible. So don't expect any major announcements from them aimed at driving the stock - like say a market dividend, or better yet Ballmer's retirement. Also expect buybacks to get curtailed significantly unless earnings are coming in weak and need to be juiced again by reducing shares outstanding.

Looking at the long-term chart, about the only potentially bullish takeaway is that you could make a technical analysis case for a run to $40 if this seemingly endless consolidation trend ever gets resolved to the upside. Whether it will before MSFT sees the major financial challenges that are almost surely on the horizon given the current strategy, leadership, and execution shortfalls, is any one's guess. Until then, MSFT likely remains what it's been since Ballmer took the helm as CEO in 2000: worse than dead money.

Time for a change. After nearly a decade, this is getting old...

9 Comments:

  • Reading an interesting book by Lee Iaccocca called "Where have all the leaders gone" in his first chapter he talks about the qualities of a leader. Ours are only hitting about 1 out of the entire list. Sigh, I'm with you man, the stock sucks.

    By Anonymous Anonymous, at 1:49 AM  

  • Reviewing the news, nothing particularly stands out as a likely cause for today's under performance. Nevertheless, the price action speaks for itself and volume is significantly above-average - so you can't write it off as meaningless. Now, in fairness, it was a triple witching day and that often causes some aberrant behavior.

    MSFT is also a component of the DJI, S&P500, Russel 1000, CBOE Tech (and several minor indices IFRC) all of which closed up as well. What ever is supressing MSFT, it is going against the 'rising tide that [otherwise] lifts all boats'.

    I would suspect institutions and funds unwinding positions on every selling opportunity.

    By Anonymous Charles, at 7:46 AM  

  • "Reviewing the news, nothing particularly stands out as a likely cause for today's under performance"

    All I see is Ballmer commenting on the GOOG anti-trust thing while in Detroit and that's not news.

    By Anonymous Anonymous, at 4:40 PM  

  • This is perhaps the most insightful line about Microsoft I've seen in print in the last year (and I read EVERYTHING about Microsoft):

    "MSFT's leadership can continue to run the company - as they have for this entire decade so far - as their private fiefdom and for their personal enrichment versus as a public company charged with rewarding its shareholder owners."

    You are correct, they can, and they will. I don't even know if a shareholder rebellion a la Yahoo (which got Semel out) would do anything.

    By Anonymous Anonymous, at 3:08 PM  

  • Do you know the email addresses of the board of directors and fund managers of the big institutions? If so, can you publish? Perhaps, we all can start forwarding this blog and analysis to them....incase they are not seeing it for some reason.

    By Anonymous Anonymous, at 7:47 PM  

  • Wow, look what happened today!

    From NYT: Yahoo’s Chief Resigns, and a Founder Takes Over

    https://www.blogger.com/comment.g?blogID=29195406&postID=1323208127554162255

    May MSFT shareholders be as lucky.

    I really do not understand the apathy... Is he so well entrenched? Is the Board to incestuous?

    By Anonymous Yahoo Chief Resigns 6-18-07, at 9:55 PM  

  • "Do you know the email addresses of the board of directors and fund managers of the big institutions? If so, can you publish? Perhaps, we all can start forwarding this blog and analysis to them....incase they are not seeing it for some reason."

    Sadly I don't. But the list of institutional and mutual fund owners can be found here:

    Ownership

    FWIW, I'm currently following up with the shareholder who helped get the YHOO ball rolling to see if there was a better way of getting the contact info vs calling each individually and likely playing endless telephone tag.

    By Blogger MSFTextrememakeover, at 11:33 AM  

  • How to contact the board of directors @ MSFT: http://www.microsoft.com/about/companyinformation/corporategovernance/contact_board.mspx

    By Blogger Collision Domain, at 9:50 PM  

  • Yeah:-(. I grabbed a bunch of MSFT when it crashed to below $22 last year (on the tail of incredibly obtuse management comments), held it for a year and a day to ensure taxation at long-term capital rates, and bowed out recently with a nice 40% gross profit, having given up on it ever breaking out of its box.

    I wish I could have waited to sell on the surge that's sure to follow Ballmer's stepping down as CEO, but I'm just not patient enough:-(

    By Blogger Aleax, at 10:17 PM  

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