THE MICROSOFT INVESTOR: Windows Phone 7 And Cloud Can Save The Day After All

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MSFT Up Marginally, Market Down
Stocks got a bounce earlier today as unemployment claims came in better than anticipated, but then fell flat or down. Shares of MSFT are up close to 1%. Upcoming catalysts include third quarter earnings release on Thursday, October 28 at 5:30pm ET; upgrade cycles of Office 2010 and Windows 7; any entrance into the tablet market (even the just the operating system); the launch of Windows 7 mobile on October 11; any adoption of Azure (cloud computing); and gamer reaction to Kinect. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.

Microsoft Slapped With Another Downgrade From Ex-Goldmanite (Business Week)
Microsoft stock has been downgraded by yet another analyst. Sasa Zorovic of Janney Capital points out that it is “difficult” for the company to catch up in the mobile arena, which is becoming increasingly important. He also expects that WP7 may create a large variety of “tweener” handsets that lack the feature set of the iPhone while carrying higher prices than Android alternatives. (A side note: Sasa used to work with Goldman Sachs analyst Sarah Friar who downgraded the stock earlier this week.)

Maybe Microsoft Isn’t Toast In Mobile After All (Business Insider)
John Gruber, a declared Apple fan, talked about his first Windows Phone 7 experience on his Podcast and came away impressed after spending 5 minutes with a WP7 device last week at a conference. The keyboard is supposed to be fantastic, browser seems decent and there is very little latency for touch input and scrolling. His verdict for now is that Windows Phone 7 is what he prefers over an Android phone (if he could just put down his iPhone for a second). Windows Phone 7 has a chance because of its boiled down functionality and a small set of killer features like the interactive home screen and the Xbox integration. Watch the full podcast here.

Ballmer’s Head Is In The Clouds As He Tours Europe (Redmondmag)
Microsoft CEO Steve Ballmer went to Europe this week to help sell the Internet cloud, a key Microsoft’s future as applications are increasingly being demanded online. In order to keep up, Microsoft’s businesses are shifting toward providing Web services to support the IT operations of organisations, which is being carried out through Microsoft’s worldwide data centre build outs. Microsoft offers software-as-a-service via its Business Productivity Online Suite of services (using hosted versions of Exchange/SharePoint) or through Microsoft’s Windows Azure cloud computing platform.

Daily Trader: MSFT Short Straddle (The Wall Street Journal)
Traders are betting that Microsoft’s stock will shrug off the good and the bad alike in coming weeks and issued an options “short straddles;” a move for traders who expect a stock to stay in a range (sell bullish “calls” and bearish “puts” in a bet that the shares settle close to the “strike price”). In this case, the trade covers a six-week period including the technology giant’s quarterly earnings report as well as the expected launch of WP7. The trade allows traders to collected premium income worth 7.6% of the stock’s price by selling calls and puts while also buying a block of Microsoft shares.

Microsoft Invests In Real-Time Ad Platform (The New York Times)
Microsoft is laying out some cash for start-up AppNexus’s latest $50 million round of financing. AppNexus is a real-time ad platform. The company has received financing in the past from Venrock, Kodiak Venture Partners, First Round Capital, Khosla Ventures, Marc Andreessen, Ben Horowitz and Ron Conway.

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