Like us, or leave us

That's the effective message Ballmer et al delivered at today's Financial Analyst Meeting. BTW, the market decided to go with the "leave us" option, although it's up a bit in after hours:

Before you say, "But hey, the market was down too". It was. However, most stocks rally on presentations to the financial community. After all, the objective of the exercise is to provide that group with greater insight into management's thinking and strategy, thereby making them more confident, not less. I would also remind you that the exact same thing happened last year. Finally, I would point out the large volume (~88M shares) and significant end of day selling (red):

I was originally going to cover the FAM in detail, but on reflection why bother? Most of it was the same tired, old, self-serving drivel we've heard before. And yet the current management team still thinks that maybe, just maybe, someone will buy it.

The stupidity can be summed up in this statement by Ballmer, which came early in his speech:

If you take a look over the last five years, a lot has gone very well from a shareholder perspective.

He went on to discuss revenue and earnings growth over this particular time period, which of course avoids highlighting the rapid ramp in costs during the past three years (the period, incidentally, that he used when referring to shareholders with [implicitly] too short of an expectation time frame). While Ballmer deserves some kudos for top line growth and - much less so - bottom line earnings during this time frame, the ultimate test for investors is how the stock did. As per usual, Ballmer omitted that little gem. So let's fill in the missing data point:

BTW, that's sans dividends. With dividends (including the one-time $3 fiasco), it would be another 14-15% higher. So call it just a 60% under performance versus the NASDAQ (although the QQQQ's, for example, pay dividends as well). Maybe it did better versus its peers? Let's check:

Er, nope (that's MSFT at the very bottom btw).

It boggles the mind that the CEO of a company whose stock has chronically underperformed the index and its peers by that magnitude, and is currently trailing the NASDAQ by almost 7% YTD (in this its major product release year), can actually stand on stage in front of investors/analysts and claim that "a lot has gone very well from a shareholders perspective". Even more incredulous is that not one of them called "bullshit!".

I'll at least give credit to CFO Liddell for doing what no senior MSFT executive has done in recent history, and that's mention the stock proactively:

Probably of more interest at the end of the day is what that looked like from a shareholder point of view, and that translated into the total shareholder return of 28 percent for the year.

Of course, it was also self-serving and primarily reflects how badly MSFT had crashed the year previously following Ballmer's now infamous spending surprise - a point that Liddell semi-acknowledged:

And, obviously, some of you will say, Well, it was at a low point last year, I could have gone back two years, and it would have been around 25 percent.

BTW, my math for the past two years - again, sans dividends - is more like 19% (~22% with). Unfortunately, having won some points by mentioning the stock, Liddell descends into the same self-serving nonsense as everyone else:

But measure it however you like, last year was the best financial year from a shareholder perspective that we've had this decade, at 28 percent.

Again, it's unbelievable to me that Liddell and others can brag about this with a straight face and no one challenges them on it. Seriously, the translation here is: "Forget the fact that this was in large part a rebound after crashing to three-year lows (following our gross incompetence in managing street expectations), that it came at the cost of another $27B of shareholder cash poured into a tender and buybacks, that it was helped by the hope that Vista was going to be a killer release (now dashed btw), and that it came after badly trailing all major indexes so far this decade (along with the largest destruction of shareholder value in corporate history). Isn't it great?".

That said, Liddell's speech is the only one I found any value in. It's worth a read. He also seemed to foreshadow some improvement in the dividend strategy (which has been a total mess so far). Although he still expressed a preference for buybacks vs dividends. Why, exactly, was left unsaid. Except, of course, that dividends actually go to shareholders, whereas buybacks can be claimed as "returned to shareholders" when in actuality a large part historically has gone to offsetting the dilution caused by paying insiders.

Bottom line, unless shareholders finally push back and call for new management, expect the next five years to look like the last five - best case. While others are spending far less on R&D and reporting massive earnings upside:

• Nintendo Profit Jumps Fivefold
• Sony's profit more than doubles, softer yen helps
• Strong sales push up Apple profit 73 percent

MSFT management is calling for no earnings acceleration because they're going to keep spending ridiculous sums on suspect "big bets" and failed business models like Xbox, while continuing to under execute wrt delivering core products that actually thrill users and generate word-of-mouth buying excitement. As regards the stock, expect it to continue to under perform. After all, who wants a mature 8-10% grower that's still spending like it's a high-growth company - and rewarding its upper echelon accordingly - because its management is ineffective and in denial?


Update:

An interesting round up of analyst impressions coming out of the meeting:

• Microsoft Becoming an Infrastructure Provider, But More Investment Needed To Drive Services, Analysts Conclude

I guess it must be some of the other institutions represented by the 100-odd professionals who follow the stock that are selling :-)