Wednesday, October 31, 2007

What a difference a week makes

A week ago, MSFT could do no right. Now, following the recent strong quarterlies, MSFT can seemingly do no wrong - or at least the market is prepared to overlook it. Vista still not tracking well and actually slowing? Yawn. Just give it more time. Higher recognition rates dramatically helped client performance last quarter? Sure, but they'll find some more revenue later. Currency gain last Q equal to much of the percentage increase in revenue and earnings guidance for the year? Well duh, but someone might as well benefit from the ever-declining US peso. Insiders selling with abandon again, including ex-President and current Director Shirley who unloaded 500K shares or 25% of his entire position? Hey, a guy's gotta live. Plus, $17.5M doesn't buy what it once did. Apple sells 2M copies of Leopard in the first weekend of availability (~10% of all capable machines)? Not to worry, Mac fans are just zealots. US Antitrust oversight of MSFT might get extended another 5 years? Oh well, legal needed something to do anyway now that lawsuits are decreasing.

Even competitors are helping out with some uncharacteristic missteps; AAPL having some fairly significant - not to mention embarrassing - teething problems with Leopard; GOOG suffering brain-drain and flailing a bit trying to check the growth and popularity of Facebook; Linux growth beginning to slow as the initial migration from proprietary UNIX starts to abate. Not to be left out, mainstream media is jumping on board too. For example, Joe Wilcox writing about the AAPL/MSFT double standard (funny stuff, especially since as a supposedly neutral [at least] MSFT observer he has been among the worst offenders) and ZDNet asking "Can't we give MSFT some props?". [BTW, have no fear. Yours truly isn't about to drink the Kool-Aid completely just yet].

And with that, the stock continues to act more like a Chinese IPO. Okay... maybe I'm pushing it a bit there. But it has made a pretty good dent in the past 5 years of underperformance (now ahead of the NAS over 1 year, still behind over 3). I tell you, if it wasn't for the fact that the sun keeps rising each morning and setting each evening, I'd question whether I was dreaming. If MSFT now starts hitting ship dates consistently, I'll be forced to conclude that I've finally wigged out or entered the Twilight Zone.

Of course, the (more likely) reality is that MSFT wasn't as bad as it seemed a week ago, nor as good as it seems now. The problems that were there before are still there, and much of this [stock] move is simply catch up. For example, even with the recent jump, MSFT still trails the industry average P/E. Plus, the shattering of the 5 year trading range likely attracted some short-term technical buyers - and they'll unwind their trades and take their profits as quickly as they put them on. Still, the high volume that has characterized this move suggests that institutions are doing some serious buying as well. And they don't normally do that unless they expect several good quarters ahead. That said, a decent pullback would seem like a foregone conclusion and even healthy, whereas a continued run without consolidation is risky long term. Today, we didn't end on the high while the Nasdaq did. So perhaps that correction is coming. We'll see (although it's up in AH).

Getting back to the company, I hope the recent stock run is viewed in context internally, not used to excuse continued inaction or otherwise ignore the many areas that still need attention. In particular, I hope someone sees the wisdom inherent in this statement, made recently by YHOO's Jerry Yang [bolding mine]:

In an acknowledgement of the famous "peanut butter" memo, in which one Yahoo executive accused the company of spreading itself too thinly, Yang admitted: "We have taken this idea that we can do two or three things well and not a thousand little things. It probably means we won't focus on a bunch of other stuff. We are in that process of identifying what makes it and what doesn't make it."

But for now, like most shareholders, I'm enjoying the ride and hoping it's the beginning of a more positive process versus just an event.

FWIW: Some other articles I've been reading:

Also, a useful earnings table that I came across:


  • It's Mac, not MAC. MAC is what your network card has for a unique address.

    By Blogger Joe, at 9:39 AM  

  • "It's Mac, not MAC."

    Changed. Thx.

    By Blogger MSFTextrememakeover, at 10:13 AM  

  • Scandal brewing? I was taking a look at the latest executive dumping and what do I see?

    Our fearless leader Lisa Brummel unloading options at $29.98...thinking to myself, "that's weirdly familiar" I went to https://stock and lo and behold, I HAD $29.98 options which expired in April

    it was the Ballmer grant which is after the dive - so what gives? Brummel is the ONLY one selling these options - did partners get non expiring options now worthwhile, while the rank and file got squat?

    Talk about another slap in the face to the peons, the same week Brummel pats herself on the back for doing nothing with InsideMS - she unloads 180K options which expired for the working folk

    What happened to transparency? How come the execs got unexpiring options?

    By Anonymous Anonymous, at 5:51 PM  

  • "How come the execs got unexpiring options?"

    Probably just a longer expiry. From the 2001 10-K:

    "Options granted between 1995 and 2000 generally vest over four and one-half years and expire seven years from the date of grant, while certain options vest either over four and one-half years or over seven and one-half years and expire after 10 years. Options granted during 2001vest over four and one-half years and expire 10 years from the date of grant."

    By Blogger MSFTextrememakeover, at 10:08 PM  

  • Probably just a longer expiry. From the 2001 10-K:

    Yes, but...

    Odd how so many of the serfs options expired underwater, then a few months later, the nobility were able to exercise their options at a tidy profit. You wouldn't suppose there was any manipulation of timing for things like, oh, say, the change in deferred revenues for Vista or the like?

    Probably not, since it would be just as easy, and less risky, for the Lords and Ladies to just shovel more money to themselves, but it does highlight the 2nd class status of workerbees.

    By Anonymous Anonymous, at 8:07 AM  

  • "Options granted during 2001vest over four and one-half years and expire 10 years from the date of grant."

    but the 29.98 options are some April 2000, post court ruling.

    By Anonymous Anonymous, at 11:18 PM  

  • "but the 29.98 options are some April 2000, post court ruling."

    Looks like she got the "certain" variety, which expire after 10 years.

    By Blogger MSFTextrememakeover, at 8:53 AM  

  • Hey Extreme -- Have they shut you down? Why so long in between posts? Also noticed mini is silent. RSVP

    By Anonymous Anonymous, at 10:39 PM  

  • "Hey Extreme -- Have they shut you down? Why so long in between posts? Also noticed mini is silent. RSVP"

    No. Just been busy on other things and haven't seen much that I thought I could add value to. I'm planning on getting something out before year end though - just debating topics. So check back if interested. Yeah, I saw Mini's been dark for a while too. He's earned the break, but I miss his insights.

    By Blogger MSFTextrememakeover, at 5:13 PM  

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