THE MICROSOFT INVESTOR: Buying Skype Makes Strategic Sense

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MSFT Down On Acquisition News 
The market is on the rise in early trading as data out of China suggests strong global demand. Shares of MSFT are down on news the company is buying Skype (see below). Upcoming catalysts include entrance in the tablet market; Windows Phone 7 adoption with hardware partner Nokia; strides against current market leaders in cloud computing; making money in the online business including search (retooling the Bing / Yahoo! partnership or just buying them outright); and continued momentum of Kinect and the next generation console (see below). The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.

Rating And Price-Target Changes (American Banking News)
Some changing views from Wall Street:

  • FBR Capital cuts price-target from $30 to $28 with a Market Perform rating.
  • UBS cuts price target from $35 to $32 with a Buy rating.
  • Zacks Investment Research reiterates Neutral rating with a $27 price-target.

Wonder how the Skype acquisition will affect ratings. Stay tuned.

Microsoft-Skype Makes Strategic Sense For Mr. Softie (The Wall Street Journal)
Microsoft is buying Skype for $8.5 billion. This is one of the biggest acquisitions Microsoft has ever made; chump change, but big. The deal makes strategic sense for Microsoft according to Henry Blodget at Business Insider. With the rise of Facebook and Gmail, the company has lost its dominance of online communications. If Microsoft could successfully integrate Skype with Exchange and other communications tools (including WP7), it would give users more incentive to stick with its products. Read more about the winners and losers of the deal at Business Insider.

PayPal Support Coming To Xbox To Buy Points And Other Content (Electronista)
Microsoft’s promised Xbox 360 spring Dashboard update should be ready in less than two weeks. Most changes are strictly internal, but a public-facing tweak could include support for PayPal to buy points, content, and subscription material. Further monetizing the console and games; how forward thinking. The update will also support a new game disc format called Xbox Game Disc Format 3 (XGD3), which will have more storage and better copy protection than the current discs. Read more at Business Insider.

Apple Replaced Google As Most Valuable Brand, But Where’s Microsoft? (The Microsoft Blog)
For 2011, Apple jumped a whopping 84% in brand value since last year, up to a worth of $153.3 billion thanks to the iPad, according to Millward Brown’s BrandZ Top 100 list. What did Steve Jobs leave in his wake? Google’s brand value dropped 2% to $111.5 billion, earning it second place with IBM third, McDonald’s fourth and … wait for it… Microsoft fifth. Softie’s brand value grew 2% over last year to $78.2 billion in 2011.