There's a great deal of discussion going on about Microsoft (NASDAQ:MSFT) these days. The discussion surrounds rumors that CEO Ballmer is leaving (or the demands by investors for him to leave), the debut of Office 365 or the constant back and forth about whether or not the tech giant is a good buy at current levels. I tend to think it is for a number of reasons often discussed, but also because of two reasons not mentioned much at all.
Bing Could Actually Threaten Google (NASDAQ:GOOG)
What! No way, right? I disagree. I think Bing could actually pose a legitimate threat to Google's near monopoly in search. The reason is one word: Facebook. Microsoft owns a small piece of Facebook, and Bing is the primary partner of Facebook when it comes to internet search. Bing is increasing the use of Facebook data in determining search results and I think this will only continue.
Google has dominated web search for a decade because it had a better algorithm in the early days to present the best search results to the end user. If you think this will continue forever, it won't without effort on Google's part to retain its place.
The reality is that the web is getting increasingly cluttered. With the introduction of the myriad of user-generated content via blogging platforms and a multitude of other formats, it's now easier than ever for non-technical people to fill the web with data. Moreover, there are countless people trying to create filler web pages, utilize SEO techniques and drive search traffic to their crappy sites in an effort to make money. Google's results are being filled more and more with these sites as a result of link manipulation (which drives sites higher into results).
Moreover, Google is also fililng more of the real estate on the results pages with its own company-owned results whether it be local searches, maps, YouTube videos, and more. This has been well documented by the SEOBook.com Blog.
The question then becomes: can the Facebook "Like" become a better indicator of quality on the web versus the traditional link that Google has emphasized for years? I think so. It is indeed more difficult to manipulate "Likes" to a page than links for SEO purposes. A large number of "Likes" is really only generated when something truly goes viral based on quality or legitimate interest.
Microsoft is playing this well in my opinion. The company is not rushing to change search algorithms drastically. It announced the partnership last fall and just recently announced the introduction of more Facebook data into the search algorithms. I expect more announcements in the future.
This is a slow, methodical process. While Google will still dominate search for some time, I like Microsoft's strategy here. If Google's response of introducing the "+1" function is any indication, it knows the legitimacy and power of the Facebook + Bing partnership as well.
Overseas Cash Coming Home?
As politicians scramble for ways to stimulate the economy without spending money and increasing the US debt, I think the calls for a repatriation holiday could increase, which would allow US multinationals to bring home billions in cash without paying full taxes on it.
While I think these politicians are mistaken in believing this will really generate much economic activity, it will be good for investors holding these stocks. This could easily result in some dividend and share buyback boosts as the management will have billions in excess cash to use.
A majority of Microsoft's cash sits overseas. As Barron's blogger reports, 84% of Microsoft's roughly $50 billion in cash is sitting overseas.
If this happens, some of this cash will indeed be brought back to the US and I think it will result in additional cash returned to shareholders since Microsoft has plenty of cash and future cash flow to fund continued operations and growth.
Shares of Microsoft have bounced 5% or so from the lows they hit recently, but still represent a very attractive buy in my opinion. Anything under $22 / share or so is a screaming buy in my opinion.
Disclosure: I am long MSFT.