"Wall Street hammered Microsoft Corp. on Friday for its decision to pour money into its battles with Google and other rivals -- sending the Redmond company's shares on their biggest decline in more than five years," reports the Seattle Post-Intelligencer.
"The stock tumbled 11% on the most volume ever for Microsoft, erasing $32 billion in market value from the company. So severe was the decline that OAO Gazprom, a state-owned Russian company, surpassed Microsoft as the world's third-largest company by market value.
"Bill Gates saw the value of his Microsoft stock shrink to $23.6 billion, a decrease of more than $3 billion on paper."
Comment: I doubt that bothers a guy who used to be worth $85 billion....
What's more interesting is that Wall Street wasn't bothered when Microsoft decided to give $32.6 billion away to shareholders, and it still has $35 billion in cash, but the idea of investing $2 billion in its long-term business had analysts in a tizzy.
On Thursday, Microsoft announced third-quarter revenue of $10.90 billion, up 13% increase on the same quarter last year, and operating income of $3.89 billion, up 17%. For the fourth quarter, it is predicting revenues of around $11.5 billion to $11.7 billion, and operating income in the $4.0 billion to $4.2 billion range. Annual revenue should come in at $50 billion or so.
Since a company's share value should add up to the sum of its future foreseeable profits, discounted for risk, it is entirely reasonable for the shares to be marked down in response to higher spending, including an increase in R&D costs. This is how the financial markets encourage short-termism. Whether the extra investments in things like the Xbox 360 and Windows Live will actually deliver profits in the long term is another issue, but it's surely a better bet than what would make Wall Street happiest -- hunkering down and milching Windows and Office.
