Dow Jones’ weekly financial magazine Barron’s has a reputation for taking a skeptical view of various Wall Street darlings so the cover article in this week’s issue (available April 1) had me wondering whether it was an April Fool’s prank:
Microsoft’s New Vistas by Eric J. Savitz
Dramatically improved versions of its Windows and Office programs should boost Microsoft’s growth and jolt its stock back to life.
You have to be a subscriber or sign up for a trial subscription to read the full article, but based on the wire service reports, I’m not rushing to find my credit card since it seems to be the same old bromides. Angela Moore at MarketWatch:
Rick Sherlund, software analyst at Goldman Sachs, sees the stock as much as 25% undervalued, Barron’s said, and he thinks the shares will start to rise as people learn more about the new Office and Vista programs.
Sherlund thinks Vista will drive an extra $1.5 billion in revenue for Microsoft over the product’s first 18 months, Barron’s reported.
Michael Sievert, Microsoft’s vice president for Windows product management and marketing, told Barron’s the company expects 400 million Vista-equipped PCs to ship in the first two years and he expects it “to be the most rapidly adopted operating system in history.”
I’ve been through this before, but at the risk of flogging a dead horse, here it is again:
We can argue about the latter point, but if there’s any evidence that any of the money making scenarios are going to occur, I’d love to see it. The most fruitful is likely Microsoft trying to upsell premium Vista versions, but until the pricing (particularly OEM and volume pricing) is revealed it’s hard to gauge customer reaction and the resulting payoff. Finally, Microsoft’s client OS’s are currently providing about $14 billion a year in revenue, so $1.5 billion in 18 months is about 7% growth which is less than the PC growth rate. They’re kidding, right?
I won’t belabor this anymore other than to state the obvious one more time: looking for growth in Microsoft’s cash cows is tough because they already control most of their already saturated markets. So what about some of the new areas Microsoft is jumping into? Reuters:
The report quoted Microsoft Chief Executive Steve Ballmer as saying the company saw growth potential for the company in such new markets as Internet-based television and wireless communications.
Predicting stock performance is an attempt to predict crowd behavior, an activity that I studiously avoid, but I think it’s possible to spin a tale of Microsoft as a long term growth stock if you work at it. It doesn’t seem that Barron’s has done so.
Update 12:10: Of course, there was one predictable result:
Microsoft shares rose 38 cents, or 1.4%, to $27.59 after Barron’s profiled the firm, saying that with a slew of new upcoming products, the world’s largest software company has again become a growth story.