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MSFT Up With Market While Tech Struggles
The market is up on positive trades in Asia and Europe this morning. The tech sector is slipping on news that Apple CEO Steve Jobs will be taking a medical leave. Shares of Microsoft are up about 70 basis points. Upcoming catalysts include holiday quarter earnings results announced after the close on Thursday, January 27; entrance and uptake in the tablet market (which is a ways off); Windows Phone 7 adoption; strides against current market leaders in cloud computing; and continued momentum of Kinect as well as other uses for the technology. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.
Microsoft’s Online Services Business Losses Could Equal What It Pays In Dividends This Year (Seeking Alpha)
Microsoft is paying out an annual dividend of approximately $4.5 billion but is on track to lose nearly $3 billion from its Online Services Division. And those loses are steadily growing. It is conceivable that Microsoft will begin losing more money in Online Services by 2012 than it pays out to shareholders. Microsoft’s current dividend yield is 2.27%. Based on the 30-year U.S. Treasury bond, shareholders will have beaten TIPS by 0.37%. Given that TIPS routinely underperform, Microsoft will have to survive and maintain the real dividend in order to break even with government securities and for investors not to lose money.
Microsoft Would Be A Tech Company Buffett Would Likely Consider (Seeking Alpha)
Microsoft is the most likely candidate to be added to the Berkshire profile. The company has an excellent record of producing solid returns on invested capital, yields 2.24%, and continues to throw off a tremendous amount of cash (more than $1 billion in cash flow per month) and remains very profitable, with operating margins in the mid-30% range. Because of its strong balance sheet and operating history, it’s likely that Windows Azure will help the firm transition from a licensed software giant to a cloud computing competitor.
Microsoft’s Latest CRM Application To Take On Salesforce (Forbes)
Microsoft Dynamics’ latest iteration of its CRM app, a cloud offering with clear global aspirations as it is available in some 40 languages. This is the first time the company has introduced an application from this product line. After close to 10 years of trailing Salesforce.com in the online CRM market, it appears that Microsoft is getting a second wind.
Microsoft Should Open Kinect To Third-Party Enhancement (Seeking Alpha)
Microsoft is missing a significant market opportunity by not being open to third-party enhancement of the Kinect hardware. It’s not too late for Microsoft to turn things around. The Kinect cost of goods will continue to fall. Instead of more aggressively pricing the hardware, it can use the savings to increase the gross margin, reduce the subsidy and make the Kinect a self-supporting stand-alone device.
Kinect Sales Will Off Set Weak Consumer PC Sales (Barron’s)
Credit Suisse analyst Philip Winslow expects the 8 million Kinect game controllers Microsoft (MSFT) sold in the first 60 days of availability, should help to offset particularly weak consumer PC shipments (estimated). He tweaked his fourth calendar quarter Microsoft estimates to $18.97 billion in revenue (down an inconsequential $30 million) and $0.68 cents in EPS. Philip rates Microsoft an Outperform with a price-target of $36.
Google And Microsoft Increase Search Share In December (Bloomberg)
Google and Microsoft took a bigger share of the U.S. search-engine market in December, while Yahoo! lost ground, according to ComScore Inc. Google’s share rose to 66.6%, up 40 basis-points from the prior month, while Microsoft grew to 12%, up 20 basis-points, while Yahoo! Inc. dropped to 16%, or down 40 basis-points. Read more insight from Business Insider.