By
Roben Farzad
Loren Callahan/Bloomberg
By many measures, Microsoft (MSFT) looks like a bargain. The company, which reports earnings on Apr. 28, has more than $40 billion in cash and equivalents, a lock on the personal-computer operating system market, and profit margins that most companies would envy. The stock had a price-to-earnings ratio of about 11 on Apr. 26, 29 percent less than the Standard & Poor’s 500-stock index’s p-e of 15.5. No wonder 26 of the 34 analysts who cover it rate it a “buy,” according to data compiled by Bloomberg.
Yet the stock is stuck. It closed at 26 on Apr. 26 a price it first crossed in 1998—and close to its average of 27 since the start of 2001. For the 10 years through Apr. 22, the shares delivered a total return of -7 percent while the S&P 500 returned 30 percent. For all its apparent luster, Microsoft is suffering from an identity crisis. It doesn’t qualify as a growth company because it has failed to come up with successful new products that would create rapid profit gains, the way Apple (AAPL) has. And with a 2.4 percent dividend yield, it isn’t doling out enough cash to satisfy value investors. Microsoft is in danger of becoming a value trap—a stock that always seems to be selling for less than it’s worth.
“Microsoft has spent 10 times what Apple has over the last decade, and the quality of innovation just hasn’t been there,” says Eric Jackson of Ironfire Capital, a hedge fund in Naples, Fla. The company has launched a series of products that failed to catch on, including the Zune music player, which will cease production this year. Its mobile operating system for Smartphones and tablets has made only a dent in markets dominated by Apple, Research in Motion (RIMM), and Google’s (GOOG) Android.
“There’s got to be a wake-up call coming up where shareholders will say, ‘Do something!’” says Richard Doherty, head of Envisioneering Group, which advises tech companies. He says he’s in touch with employees who resent that their shares have underperformed and how the company has missed out on big tech trends like streaming media and social networking. “You no longer work at Microsoft to get rich on stock options.”
While the company has returned $170 billion to investors in buybacks and dividends in the past decade, some investors want more. Jackson says last summer he lobbied Microsoft Chief Financial Officer Peter Klein to increase the stock’s quarterly dividend by at least five times what the company ultimately decided—a 3 cents hike, to 16 cents a share on Sept. 21. “I said that they needed to wake shareholders up to the value of a high-yielding stock like Microsoft,” Jackson says.
The stock is up 4 percent since the dividend announcement, while shares of Apple, which pays out none of its $66 billion cash hoard, have increased 24 percent. IBM (IBM) has so deftly diversified out of the PC business that its shares are at an all-time high. Says Microsoft’s general manager of investor relations, Bill Koefoed: “Over the long run, share price is indicative of earnings results, and we feel pretty good about our future prospects.”
Value investor Whitney Tilson of T2 Funds has been a longtime Microsoft supporter. In his 2010 yearend letter to investors, Tilson wrote that the stock’s valuation was “insanely low.” In February he told his investors he was adding to his Microsoft stake. He took issue with what he called the “consensus view that Microsoft is a fading giant,” saying “there is no current evidence to support it. Microsoft’s market share in its key business areas is stable or rising, and sales, margins, and profits are growing nicely. We think there is robust growth in store for Microsoft.”
Ironfire’s Jackson isn’t buying that argument. “They should embrace their strength—cash,” he says. “And not pretend they are still a growth company.”
The bottom line: Investors have not been rewarded for their faith in Microsoft, which has returned -7 percent over the past 10 years.
Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance.
Tags: Business, faith, microsoft, microsoft-chief, richard-doherty, Social Networking, stock, zune
April 11, 2011, 11:37 PM —
Cameron Winklevoss (L) and twin brother Tyler Winklevoss are shown in this combination photo leaving the 9th Circuit Court of Appeals after a hearing on a settlement dispute with Facebook’s Mark Zuckerberg in San Francisco, California January 11, 2011.
Image credit: REUTERS/Stephen Lam
By now many of you know that a en banc” group of 9th Circuit judges with the authority to overrule the panel’s decision. But an en banc hearing must be requested and is not granted as a normal part of the appeals process.
Failing that, an appeal to the U.S. Supreme Court is the only arrow left in the twins’ litigation quiver.
Facebook settled with the Winklevoss’s in 2008, when the company was already generating plenty of buzz but well before it began looking like the most successful Internet start-up since Google.
The twins eventually decided they were short-changed in the settlement, arguing that a Facebook internal valuation estimated that the company’s worth was considerably higher than the Winklevoss’s and their attorneys were led to believe at the time.
However, in announcing Monday’s decision, 9th U.S. Circuit Court of Appeals Chief Judge Alex Kozinski wrote, “At some point, litigation must come to an end. That point has now been reached.”
It’s easy to paint the Winklevoss’s in an unflattering light for appealing a settlement to which they’ve already agreed, one that enables them to split $65 million and thus become even richer than they already are.
Plus these are two 6′ 5″, incredibly handsome brothers who grew up privileged in Greenwich, Conn., went to tony private schools and then on to Harvard. They’re not exactly sympathetic characters, and the notion of them being victims is almost laughable.
But Facebook did settle with the Winklevoss’s, and whatever you want to say about settlements, I choose to believe it’s an admission of some wrongdoing. After that, it’s about price.
Indeed, that’s the crux of the Winklevoss case: That they were deceived about Facebook’s value at the time of settlement. Clearly the Winklevoss’s believed they were — even if the 9th Circuit panel doesn’t agree — so they pursued a legal remedy.
Which is their right. Yet the Winklevoss’s have been mocked for their appeals bid — including by me, right here, when I wrote, “It’s a cold, cruel world we live in when tall, handsome, wealthy Harvard graduates have to make do with a mere $65 million settlement to which they agreed.”
But I’ve grown since January, and now realize that when the rights of the wealthy and privileged to exhaust every single, possible, conceivable legal remedy are threatened, the rights of all of us to exhaust every single, possible, conceivable legal remedy are threatened.
Some see Cameron and Tyler Winklevoss fighting for more wealth. I see them fighting for the rest of us. Except, if they win, they get all the money.
Tags: appeals-chief, before-it-began, circuit, circuit-court, combination, internet, judge-on-monday, money, rights, supreme-court, time, twins, tyler, winklevoss
Looking for a more PC-style web browsing experience on your iPhone? You might want to have a look at Ultimate Browser, a new web browser that just hit the App Store with a host of features. We’ve also got a line on a couple of other interesting new apps, like the food-filled Vegan Recipes, and a Twitter-enabled music-sharer called airTweet Pro. Have a look and start downloading below.
Apple might have amped up the speed of its out-of-the-box Safari web browser with the release of iOS 4.3, but some users still want a browser that’s more like the experience they get on their home computers. For those people, there’s Ultimate Browser, which works in a more PC-like experience, using features like tabs, a download manager and social networking integration.
You can customize your search engine providers with Ultimate Browser, as well as share web links between your computer and your iPhone or iPad over your home Wi-Fi network. You can also send those links to friends and to your other devices, allowing you to make your browsing experience seamless no matter what device you’re on.
Not a meat eater? Pick up Vegan Recipes for instant access to hundreds of food and meal possibilities with all the details available right on your iPhone. The app comes full of different foods, from snacks and dips to lunches and dinners, and are all broken down by category so they’re easy to find.
Along with recipes and ingredients lists, Vegan Recipes is packed full of pictures of food to help you make sure you get your cooking right. It’s also regularly recharged with new recipes, drawing on popular vegan and vegetarian blogs from around the Internet.
airTweet mixes music appreciation with the social network Twitter to allow users to share what they’re listening to with friends and followers. Fire up the app and you can access the music files on your device and listen to them, then quickly fire off a tweet about what you’re listening to, along with whatever message you want.
The central tenet of airTweet is speed, so you can actually save text for your updates ahead of time and use it automatically when you tweet about a song. The app also uses gestures to control the device’s iPod functionality, meaning you won’t have to mess with virtual buttons to change songs on the fly. airTweet will also bounce you straight to iTunes or use GrooveShark to locate your songs, allowing you to share links to purchase them with your friends.
Tags: browser, browsing, cooking, device, iphone, recipes, search, social, Social Networking, ultimate-browser, vegan, web-browser
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