MSFT vs Housing

Alan

http://moneycentral.msn.com/detail/stoc ... ol=US:MSFT

In the last 12 months, Microsoft stock has gone from a low of 26.60 to 36.84 today. That is an annual return of 46%.

Quick! Everyone sell your house and buy MSFT stock!

rose-colored-coolaid

Just saw this today. It seems, the Japanese are bored with PCs, and are buying other tech gear instead. My understanding is most of the world is going in a similar direction. My question, is if people stop buying PCs, and businesses continue moving servers to Linux, what is MSFT going to sell? Zunes?

What you're seeing with MSFT stock price is the Zillow effect. People in Seattle are Zillowing their homes so often, that they need a faster Vista machine to keep up with their desire to see their home's price change by the second.

Alan

Don't think for a second that Microsoft is complacently sitting still.

http://www.crn.com/software/201001194?pgno=2
http://msdn2.microsoft.com/en-us/archit ... 99384.aspx

rose-colored-coolaid

I never said they were sitting still. But let's be honest here, MS is good at what they've been making money on all these years. They are not, however, very agile at this point. And markets are changing a lot. They have thrown incredible money at MP3 players, video game systems, mini-laptops (Oragami), and internet search, but are leaders in none of them. Adobe and Javascript are the leading technologies for rich web clients, with Python, Ruby, and Java as additional candidates.

If you live in a developing country, you might have a cell phone, and use that for all your internet activities. If you view pages running Javascript, HTML, and Flash, running on Linux servers with an apache web service...why do you even care about MS again?

They used to carry a monopoly premium on their stock price. It was well warranted. Remember how MS practically eliminated Netscape from the browser market? But where is their influence now? Firefox and Opera are taking back market share at a linear rate of a few percent a year. That's slow, but MS circa 1997 wouldn't have stood for it. Today, they can't stop it.

MS isn't going away, they have a lot of cash and a business which is still very profitable. I don't see their fortunes improving much either. What IBM is today (a very profitable big company with little innovation or revenue growth), MS will be in 15 years.

Cheers!

The_Tim

rose-colored-coolaid wrote:

They have thrown incredible money at MP3 players, video game systems, mini-laptops (Oragami), and internet search, but are leaders in none of them.

I'm no MS apologist by any means, but it would appear that the massive investment in video games is finally beginning to pay off. They're arguably the market leader in home consoles in the USA right now. See this chart, which shows that they still maintain a lead of over 2 million units sold vs. the Wii, and nearly 6 million over the PS3. Granted, most/all of the 360's lead over the Wii is due to the one-year head start, but they're definitely not the poor performers they were in the last generation.

Alan

I have a lot of belief in the long term growth potential of Microsoft. I wouldn't work there otherwise. I think we've only seen the tip of the iceberg in computing's impact on society. Microsoft's research investments are going to keep it competetive and growing for a long time.

Still, I have to say that Nintendo really hit a home run with the Wii. Nintendo has said that they are still having trouble keeping production up with demand. The fact that they are only 2M units behind the 360 despite starting a year later really is really impressive.

rose-colored-coolaid

The Tim wrote:

I'm no MS apologist by any means, but it would appear that the massive investment in video games is finally beginning to pay off. They're arguably the market leader in home consoles in the USA right now. See this chart, which shows that they still maintain a lead of over 2 million units sold vs. the Wii, and nearly 6 million over the PS3. Granted, most/all of the 360's lead over the Wii is due to the one-year head start, but they're definitely not the poor performers they were in the last generation.

My bad, Tim. Through this summer, I thought Nintendo had almost caught MS with console sales in USA, but now that you mention it, I think Wii leads internationally and 360 leads domestic. Also, to MS's credit, their attachment rate (number of games sold per console) is said to be considerably higher than that for the Wii. Of course, you could also make the argument that Sony would probably be eating everyone's lunches right now if not for their own massive ineptitude. Of course, the PS2 has continued to sell better than any of the new systems, so what does that tell you?

MS has spent an incredible amount of money getting into that market, and by all accounts they are finally now becoming profitable at it. Yes, they are now winning the teen and young male adult video game market from a company that would rather sell BluRay DVDs and another that would rather sell to girls and older demographics. MS is winning by producing the most average machines. Average in that it does nothing remarkable (except red-screen of death), and is just a suped-up XBox. This is a good tactic for taking market share from even worst competition (Sony), but it doesn't grow market share. It doesn't create new markets. And competing in already mature markets will always be a tough area to grow.

I feel this all really goes back to my original point. MS is not an innovative company today. They perform good research, but so did Xerox and AT&T. But MS does not know how to move the products to market in an agile manner. They are used to flexing the monopolistic muscle and getting their way, and it isn't happening as much now. Look at Silverlight, look at the office XML standards. Eight years ago, MS would have pushed these things through, and today nobody is interested.

The_Tim

rose-colored-coolaid wrote:

My bad, Tim. Through this summer, I thought Nintendo had almost caught MS with console sales in USA, but now that you mention it, I think Wii leads internationally and 360 leads domestic.

That's correct (chart), and I believe it's due in large part to the absolute @$$-whooping that MS is being handed in Japan (chart).

rose-colored-coolaid wrote:

Of course, the PS2 has continued to sell better than any of the new systems, so what does that tell you?

Actually, that's not true. The Wii has been outselling the PS2 for quite some time, and the 360 has been outselling it most of the time as well (chart, chart). The PS3 is the only modern console that's been consistently outsold by the PS2 (both in the USA and worldwide, and recently even the PS3 pulled ahead. We'll see if it lasts.

Also, for what it's worth, the Xbox 360 currently has by far the best online experience of the three home consoles. MS is definitely innovating in that arena. Of course, that's software, which is really what they do best. As far as hardware goes, the 360 is definitely no crown jewel. It gets the job done, but there's really no innovation to be found. Unless you call a super-high chance of getting a defective unit that needs to be sent in for repairs "innovation." (I had to send mine in after just two months.)

P.S. (I love http://vgchartz.com/ )

rose-colored-coolaid

The Tim wrote:

Also, for what it's worth, the Xbox 360 currently has by far the best online experience of the three home consoles. MS is definitely innovating in that arena. Of course, that's software, which is really what they do best.

Ooops, I meant to add that same comment, but forgot. Yes, MS provides the best online service, which is not surprising. MS already needs a massive infrastructure for their other online content (Tuesday patch servers, MSN, search, etc). They should provide better online content than Wii.

I think your comments about hardware are exactly what I meant about producing an average product. Which, I want to emphasize is fine. GM, Volkswagen and Nissan could all be said to provide average quality cars at average prices, and they are all good profitable companies.

Just to give a balanced opinion, MS does seem to have pretty good dividends. Invest for those rather than phantom stock gains. MS is worth $36 a share only because Google is worth $700, Apple is worth $186.

Alan

MS is worth $36 a share only because Google is worth $700, Apple is worth $186.

What do you mean by that?

GOOG is currently valued at 55 P/E. AAPL is valued at 47.80 P/E. MSFT at 24.30 P/E.

Those higher P/E ratios (which means lower returns) for GOOG and AAPL are accepted due to higher growth in income. It is sort of like a RE property where the rent is climbing faster. People are willing to accept a lower rate of return today in exchange for a chance at more income tomorrow. If MSFT starts growing at similar rates again, the market will adjust accordingly.

I think the MSFT's valuation has very little to do with GOOG's valuation.

laxtosnoco

RCC, price per share is pretty irrelevant. Market Capitalization tells how much a company is worth to shareholders:

MSFT $341B

GOOG $231B

AAPL $164B

Of course, the most valuable company in the world is Exxon Mobil trading around $90/share, but worth about $495 billion.

rose-colored-coolaid

Alan wrote:

What do you mean by that?

GOOG is currently valued at 55 P/E. AAPL is valued at 47.80 P/E. MSFT at 24.30 P/E.

What I meant is they are all over priced. People started looking at GOOG and AAPL at massively high valuations and decided that compared to those valuations MSFT was priced too low. It's the same reason ugly houses rose in value during the last 4 years.

24 P/E is nearly twice normal valuations. That's better than being 4x normal valuations (sic). That's all I meant. Look at it inverted though, if MSFT shares catch cold, AAPL will catch the flu and GOOG will catch malaria.

Alan

MSFT price went up the past few weeks because earnings increased. MSFT was trading around 25 P/E when it was at $27 and $32. The market is valuing MSFT in the same way that it has been.

rose-colored-coolaid

Guess I'm on my own here.

Alright, I retract all neutral or negative sentiment regarding Microsoft. They are the model corporation and unfairly picked on by the media, Europe, nerds, and most other tech companies. Oh yeah, and their free soda for employees is better than Google's free food.

deejayoh

rose-colored-coolaid wrote:

Guess I'm on my own here.

Alright, I retract all neutral or negative sentiment regarding Microsoft. They are the model corporation and unfairly picked on by the media, Europe, nerds, and most other tech companies. Oh yeah, and their free soda for employees is better than Google's free food.

well, not. I've been to the GOOG. the food is quite good. and as mentioned, free (which is generally quite good). And they have naked juice. not just soda.

and that's how I'd choose my employer. by the food perks.

The_Tim

rose-colored-coolaid wrote:

Guess I'm on my own here.

Alright, I retract all neutral or negative sentiment regarding Microsoft. They are the model corporation and unfairly picked on by the media, Europe, nerds, and most other tech companies. Oh yeah, and their free soda for employees is better than Google's free food.

Hey, I wasn't trying to disagree with your overall point. I was just arguing about the video games. Cause in case you can't tell, I'm rather into video games, and know a thing or two about that scene