Will we be seeing 'probing' in the papers or 'observation'?
Posted June 10, 2007
—C.M., via the Internet
A The world's largest software company must bulk up to do Internet battle with Google Inc.
To accomplish this, it is paying a premium cash price of about $6 billion to acquire aQuantive Inc., a leading advertising agency for the Internet that has strong display- and banner-ad technology. That is the largest acquisition in Microsoft's history.
In addition, it recently bought a minority stake in its job-listings partner CareerBuilder.com for an undisclosed amount. While reported talks to acquire Yahoo Inc. have been inconclusive, some type of partnership could take place there, too.
Microsoft Chief Executive Steve Ballmer, acknowledging that most of his firm's 150 or so acquisitions since 1990 have been relatively small, has stated, "We are open to large acquisitions."
No wonder. Microsoft was reportedly outbid for the Web ad giant DoubleClick by Google, which paid $3.1 billion. Few major online ad firms were left.
The online ad market continues to grow faster than any of Microsoft's core businesses. Critics believe Microsoft hasn't been waging an aggressive enough fight against Google.
Shares of Microsoft are up 1 percent this year following a gain of 14 percent last year and losses of 2 percent in 2004 and 2005. Earnings rose 65 percent in its most recent quarter, thanks in part to demand for its new Windows Vista operating system. Nearly 40 million Vista licenses were sold in the first 100 days after the Jan. 30 introduction.
Meanwhile, the third installment of Microsoft's important Halo video-game franchise is scheduled to be available in U.S. retail stores Sept. 25 and European stores the following day. Fourteen million units of Halo games have been sold, which has driven sales of the popular Xbox and Xbox 360 video-game consoles.
The consensus analyst recommendation on shares of Microsoft is "buy," according to Thomson Financial. That consists of 16 "strong buys," 14 "buys," 11 "holds" and one "sell."
The majority of Microsoft's revenue and profit still comes from its Windows operating system and Office productivity suite.
Yet it must now deal with the trend toward software as a service, in which software is delivered over the Internet and paid for with licenses, subscriptions or advertising. Other challenges are software piracy, regulatory scrutiny and competitors such as Firefox and Linux.
Earnings are expected to rise 17 percent in its current fiscal year ending in June and 15 percent next fiscal year. The five-year annualized growth rate is projected to be 12 percent, versus 14 percent for the application software industry.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.