MSFT: the flat decade

Microsoft’s stock performance has been relatively flat for the past 8 years (check out the chart). Does that mean that they’ve penetrated the OS market as much as they can?

That doesn’t seem right for two reasons:

  1. the world population is expanding
  2. computers are becoming cheaper meaning more people can afford computers

Given that, how can MSFT have maxed out it’s value?

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  1. Srsly? Other factors include:

    The rise of user-friendly linux distros;

    The declining centrality of the onboard OS (that is, on the eve of the online operating system, people are more free to stick with an outdated onboard OS like, say, XP);

    everything that Microsoft does besides operating systems impacts its value, and almost certainly other business sectors have losses offsetting gains in OS penetration; and

    flat compared to what?

    I guess my question to you is who is saying that the reason for the flat performance is that they’ve penetrated the OS market as much as they can, and why does it need debunking?

  2. Microsoft gets stomped trying to enter new markets, think about what they spent on the Zune, remember that? Isn’t it the Wii what you see in living rooms? That stuff hurts the bottom line. OS is their anchor, but even Vista has been lackluster, plaqued with launch delays, and nervous consumers worried about bugs and comfortable with XP. Office software is slowly migrating to online platforms like what Google has to offer. And, I have friends that convert to Macs but never the other way around. Most of all, what Wall Street looks at most, they just can’t seem to impress with earnings growth. Notwithstanding, the stock does give good trading opportunities. If you bought in June 2007 and sold in Nov 2007, you’d be happy!!! The secret, buy on big sell offs.

  3. For what it’s worth (and I understand that it isn’t much), I switched the other way. I’ve owned several macs, but now use XP at work, Vista at home and Ubuntu on the lappy.

  4. but you know, anything microsoft can do, apple can do better

    i hate to be the finance geek here (well, i sort of like it) but there is also a phenomenon with companies in general that their big growth phase ends and then their stock becomes a little more sedate as investors aren’t willing to pay quite so much as they see earnings growth slowing. if a big company could keep growing as fast as a smaller company it would eventually be worth more than the us economy, which is sort of a catch-22. (just imagine that year after year a huge company kept growing say five times as fast as the overall economy. can’t really work, unless it actually BECAME the economy.)

    if we look at microsoft’s stock value versus its earnings, we see that it’s increased its earnings but that people aren’t willing to pay as much as before for the same earnings because they are now less rosy about the company’s ability to continue the same breakneck growth it used to enjoy.

    even so, microsoft has been one of the more profitable large companies out there with one of the largest hoards of cash. but the easiest places to grow so rapidly exponentially have been tapped out. china doesn’t like the idea of being beholden to microsoft and would rather go linux where it can. people aren’t seeing vista as a must-have upgrade. microsoft has no ipod or iphone. the xbox is not a cash machine. they are growing but just not fast enough to please high growth investors. keep in mind though that if you go back eight years you go back to when investors had very silly ideas of what a stock is actually worth. so if microsoft had been valued fairly then, its stock would have gone up from there.

    i see microsoft’s big failure not as the zune but as not competing with google in search and ads. they had enough resources to at least be even with google, and they didn’t have the vision and focus to pull it off.

    even so, with a return on equity over 40% (buffett might look for 15% or more) and a price-to-earnings ratio of about 16 some might see microsoft as a value play. this has got to be the lowest price to earnings and lowest price to cash flow the market has ever given the company, although microsoft also been increasing its earnings more inconsistently than at any time in the past.

    if an investor buys microsoft stock today, he gets a lot more company than he would have for the same price eight years ago. of course, he probably also has a more sober expectation for growth going forward.

    plus, he has to put up with steve ballmer’s insane rants. i do think management has lost some focus, even with the difficulties of managing such a bohemoth company. it’s still the third largest company by market capitalization even after eight years of stagnant stock prices! (compared to the other two, exxon has been speeding on upward on high energy prices, while ge has cooperated and been just as flat as microsoft. it does need to watch out below for google, apple, ibm, oracle…)

    p.s. for the record microsoft has started paying a dividend so that’s a minor consideration. if only it came close to matching inflation and the declining dollar…

    * Yes, I use Windows. When I use a Mac I feel myself starting to lose my mental edge. They are just too easy and intuitive. I want to keep my mind sharp. When the cylons start hacking and blasting their way into our society, I feel Mac users will be the first to fold.

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