Caris & Company analyst Tim Boyd comments on the impact of Microsoft (MSFT) Chairman Bill Gates' June 15 announcement that he will gradually be leaving his day-to-day capacity with the company over the next two years:
Highlights from Boyd's note include:
• We view this news as a minor negative for the stock. “Microsoft” and “Bill Gates” are synonymous, and now investors must come to grips with life after Bill. Some had thought “Bill Is Back,” a notion now disabused.
• The market seems to be displeased that Gates, not Steve Ballmer, will be the one stepping aside. The after-market action in MSFT shares was very interesting: as soon as news of the conference call hit the wires, MSFT shares spiked upward nearly 2%. From what we have been able to gather anecdotally, this seems to have been due to speculation that Ballmer would be stepping down. When the true nature of the conference call became apparent, the shares shot right back to the downside and now trade below yesterday’s closing price. If the market was indeed displeased that Ballmer’s head wasn’t about to roll, it can be forgiven: MSFT has done very little for shareholders since Ballmer took over the reins of the company in 2000 and now the stock is down ~16% YTD.
• Our thesis on MSFT remains unchanged. Gates or no Gates, Microsoft’s business model is under pressure. The company is not currently well-positioned to succeed in a digital-services-based economy and, as a result, has seen a sizeable portion of its market cap stolen by a company that is well-positioned, namely, Google (GOOG). For this reason, we reiterate our AVERAGE rating on MSFT. Last night’s announcement does not make us more favorably inclined toward the shares.
MSFT 1-yr chart: