It's safe to say that Microsoft hasn't had this kind of optimism swirling around it in, well, I can't remember the last time. Windows '95 maybe?
This company is firing on all cylinders, even though shares would suggest otherwise. The company will report its first fiscal quarter earnings after the bell, and feeding into the frenzy are headlines about Halo 3, Xbox 360, the Vista upgrade cycle and now of course, what Facebook may or may not bring to the party.
I've already detailed in previous posts just how strong the gaming sector has been for Microsoft these past few months. But there are other pieces of the Microsoft puzzle that need a look-see as well. The company closed its $6 billion acquisition of aQuantive, and there's a belief on the Street that despite the huge multiple Microsoft paid, the deal will bring a sizeable payoff sooner rather than later.
The other acquisition that garnered few headlines, but should have, was the company's play for AdECN. Also an important deal to watch, and both important for analysts watching the progress of Microsoft's Online Services Group.
Analysts are looking for 39 cents on $12.57 billion, right in the middle of the range Microsoft offered. Which leaves room for some upside. Most of the analysts I'm talking to are expecting the company to beat estimates today and raise guidance for the company's second quarter. The trouble for investors: despite all this good news, this stock just doesn't seem to move. Even the targets are $32 even $35 a share. Not a blockbuster upside for a company expected to print billions more in profits later today.
But that's the here and now. The play for Facebookis also worth a deeper look, the day after. McAdams Wright Ragen in Seattle has a report out this morning saying the deal isn't about the money, but about the overall online strategy. Facebook has 49 million registered users today; on the conference call yesterday, Microsoft expects that figure to balloon to over 300 million "in the next few years."
And many of those users will be international. Facebook is the sixth most trafficked (is that a word?) site in the U.S. and has over 54 billion page views a month. That's all fine and dandy, but there's no publicly stated strategy on how to monetize all that action.
A $15 billion valuation puts a $300 tag on every current user. That's, ummm, generous, to say the least. Further, as much as Facebook might grow, the $240 million Microsoft shelled out (a pittance for the company, the figure might sound big, but that's like Bill Gates' cell phone bill), Microsoft will only hold a 1.6% stake in the company. Is that enough to scare away Googledown the road should the search engine decide it might want a piece of Facebook, too? Absolutely not.
This is a head-scratcher. Not for Facebook. I mean, a $15 billion valuation for a company that only expects $30 million in profits is not something you can turn down, especially when you're desperate for cash as you try to build out your infrastructure.
I guess Microsoft has nothing to lose, and neither does Facebook.
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