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Tom Young

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  • Microsoft strikes ad deal with AOL/Verizon; Bing to power AOL search [View news story]
    They already took a $6.2 billion write-off on the aQuantive acquisition in 2012. What would be left to write off?

    Any assets developed organically should fetch at least book value.
    Jun 30, 2015. 01:49 AM | Likes Like |Link to Comment
  • Why I Wouldn't Own Microsoft [View article]
    Intel only makes money when new computers are sold.

    Microsoft's Windows and Office revenues are split into transactional and annuity. Transactional revenue would be affected by lower PC sales, but annuity revenue would not change.

    With Office 365, they have been aggressively converting transactional sales into annuity revenues. For Windows, they're dropping the license fee and pushing Bing and Cortana onto machines.

    In both cases, it no longer matters to Microsoft if the computer gets replaced. They just need the computer to remain in service to make money.

    P.S. This is why the author's analysis is so off the mark. Decreasing license revenues is a *GOOD* thing as long as it's replaced 1-for-1 on the nontrasactional side. In fact, the refresh cycle for Office 365 is designed to be a little shorter than the transactional refresh cycle for Office, so they actually come out ahead with a 1-for-1 replacement.
    Jun 29, 2015. 11:47 AM | 2 Likes Like |Link to Comment
  • 3 Ways To Beat Buffett's Berkshire [View article]
    That web page is not the history of Macquarie Infrastructure Group. That's the history of Macquarie Group Limited. They both have "Macquarie" in the name, but they're not the same thing.

    There are a couple dozen different Macquarie infrastructure trusts, each launched at different times. This particular one (MIC) had its IPO in 2004. This is clearly stated on page 4 of their 2004 annual report:

    "The trust and the company were each formed on April 13, 2004. On December 21, 2004, we completed our initial public offering and concurrent private placement of shares of trust stock representing beneficial interests in the trust."
    Jun 4, 2015. 05:27 PM | 6 Likes Like |Link to Comment
  • CNBC: Microsoft held "significant talks" with Salesforce, disagreed on price [View news story]
    $70 billion is almost 1/5 of Microsoft's market cap. They would have to issue $70 billion of debt and stock to pay for the deal. They can't touch their cash because it's located overseas, so it would be taxed when repatriated.

    What would Microsoft get in return for this massive dilution? An acquisition that contributes less than 6% to revenues and decreases net income. A product that runs on a database produced by Oracle, a direct competitor.

    The whole thing is a complete joke.
    May 22, 2015. 02:32 PM | 17 Likes Like |Link to Comment
  • Microsoft Is A Fantastic Business On Sale - Be Grateful For The 9% Decline After Earnings [View article]
    You should be grateful any time that price diverges from value, whether high or low. If price is higher than value, then sell. If price is lower than value, then buy.

    An efficient market is the value investor's worst enemy.
    Jan 29, 2015. 12:34 AM | Likes Like |Link to Comment
  • Microsoft Is A Fantastic Business On Sale - Be Grateful For The 9% Decline After Earnings [View article]
    Microsoft is converting transactional revenue to subscription. This causes revenues to decrease in the short-run, even though Microsoft's earnings power actually goes up over the long run.

    A consumer license of Office may have cost $150 for three PCs. By selling a $100 subscription to Office 365 for five PCs, Microsoft has increased its long-term earnings power. However, it shows up as a $125 decrease to earnings for this quarter, because that customer did not buy a perpetual license of Office.

    This effect even shows up for Windows with Bing, which costs $0. Microsoft gives up all the up-front revenues, but gets the ongoing revenues from Bing search ads.
    Jan 29, 2015. 12:30 AM | Likes Like |Link to Comment
  • Microsoft Is A Fantastic Business On Sale - Be Grateful For The 9% Decline After Earnings [View article]
    Management is guiding next quarter's revenues at -4% year-over-year. This will flow through the income statement and have about a -20% effect on the bottom line. That could account for the drop.

    Of course, -4% of that is currency effects, so they're actually guiding to flat revenues year-over-year.

    Plus, they take a hit when transactional revenue turns into subscription revenue. Even though they're increasing their earnings power over the long run, it shows up negative until they pass the mid-point on the adoption curve.
    Jan 28, 2015. 10:57 PM | Likes Like |Link to Comment
  • Microsoft Is A Fantastic Business On Sale - Be Grateful For The 9% Decline After Earnings [View article]
    Great news! If the stock drops 20% from the high, then that'll make the buybacks 20% more effective at reducing share count. They've just committed to $31 billion in buybacks in the next two years!

    If the stock drops to, say, $37, then the buybacks will take out 10% of the outstanding shares. MSFT has been diluting at about 2% a year, so the actual effect on diluted share count will be -6%.
    Jan 28, 2015. 10:28 PM | 2 Likes Like |Link to Comment
  • Update: Microsoft's Q2 Earnings Show That The Transition Is Gaining Momentum [View article]
    Stock buybacks are not merely continuing, but accelerating dramatically. They're going to complete the entire buyback authorization by December 2016. There are $31.1 billion left in the buyback authorization. This is almost double the $2 billion per quarter that they've been doing.

    Commercial licensing was guided at $10.8 to $11 billion for the quarter. $10.7 is only slightly below the low end of guidance for Q2 2015. Other segments came in on the high end of guidance

    Phone Hardware actually exceeded the high end of guidance. Remember that the Phone segment includes featurephones, which are expected to decline.

    Midpoint of the revenue guidance for the whole company for Q3 2015 is -4.4% YoY. (Excluding revenues from Phone Hardware, which didn't exist in 2014.) This includes -4% in currency effects!

    There are headwinds, but that's not the whole story. There is also momentum in the cloud segments. There is also a large tailwind that will be taking out another 5% of outstanding shares. It's nowhere near the disaster that Mr. Market seems to think.
    Jan 27, 2015. 08:06 PM | 1 Like Like |Link to Comment
  • Microsoft: The Bears Are Wrong [View article]
    Not "guys." Heather Bellini is the Microsoft analyst over at Goldman Sachs.

    Been very negative on MSFT ever since she joined.
    Apr 19, 2013. 07:28 PM | 2 Likes Like |Link to Comment
  • Hardware Sales Contribute To Increased Sales And Profits At Microsoft [View article]
    Actually, revenues in the Windows division were flat year-over-year, and there was a 20% y-o-y drop in operating income. It would've been worse without Surface, that's for sure.

    You have to adjust for the revenue deferral. If you read the earnings transcript, you'll notice that the Microsoft people all discuss the non-GAAP numbers. This is because Microsoft's revenue deferrals are so substantial -- accounting for as much as 1/4 of quarterly revenues. Without adjusting, it becomes difficult to compare financial performance over time.

    Note: The deferred revenue has already been recognized in Q3 -- so there will be no artificial bump in Q4. When the headlines scream about a quarter-on-quarter decrease, be forewarned that the journalists have probably failed to account for the deferral.
    Apr 19, 2013. 01:51 PM | 1 Like Like |Link to Comment
  • Hardware Sales Contribute To Increased Sales And Profits At Microsoft [View article]
    The guy at the tech-thoughts.net link got a $321 premium for the 64 GB Surface Pro, over the 32 GB Surface RT. I think he's about correct.

    He did use the tray price for the Intel processor, but I think there are some other components that will eat up any discount Microsoft has obtained from Intel.

    So $298 + 321 = 619. That's a 31% margin for the 64 GB Surface Pro, excluding retail and distribution. (The keyboard has a huge margin, so I'm assuming it takes care of all that. Also, Microsoft is selling a lot of them direct, so distribution costs aren't as high as they otherwise would be.)

    As for Mr. Blair's table, I think most of the line items in the BOM breakdown are priced too low. Not just NAND -- but also DRAM, screen, camera, modules, battery, mechanical, and assembly. Each is only off by a couple of dollars, but they add up.
    Apr 19, 2013. 01:49 PM | Likes Like |Link to Comment
  • Microsoft (MSFT): FQ3 EPS of $0.72 beats by $0.04. Revenue of $20.49B misses by $71M. Shares +1.7% AH. (PR[View news story]
    You should *always* read the actual earnings report for yourself. Don't just trust the news sources.
    Apr 18, 2013. 06:55 PM | 1 Like Like |Link to Comment
  • IDC Data Are More Bullish For Microsoft Than The Market Seems To Realize [View article]
    I don't know what Office 360 is, but I have looked at Office 365.

    As far as I can tell, Office 365 bundles are priced roughly the same as Volume Licensing of the equivalent products, assuming a three-year upgrade cycle. This does represent a decrease in total costs, as Microsoft handles the servers and administration for you. On the other hand, Microsoft has enormous economies of scale. They can run an Exchange cluster with an order of magnitude fewer sysadmins that it would take a company to run its own Exchange clusters.

    The bundled nature of Office 365 may also lead companies to buy more than they otherwise would have. For example, the E3 plan includes Lync. You have to get Lync in order to get the Exchange Enterprise features.

    The small business plans are indeed cheaper than the boxed products at retail. But this essentially just amounts to Volume pricing for everyone. By selling directly, the retail store does not take a cut, and Microsoft does not actually lose money. Note also that small businesses have historically upgraded on a much longer cycle than enterprises. Office 365 is essentially putting them on an enforced three-year upgrade cycle, thereby increasing revenues.
    Apr 16, 2013. 12:43 PM | 1 Like Like |Link to Comment
  • IDC Data Are More Bullish For Microsoft Than The Market Seems To Realize [View article]
    Each Surface tablet is worth as much to Microsoft as 3-6 licenses of Windows. So Microsoft can actually afford quite a bit of substitution.

    Windows is a cash cow, but it is actually Microsoft's *second* largest business. The Business division is larger in both revenues and income. The Server & Tools division has already matched Windows revenues, and turns in about 70% as much earnings. Both of these divisions continue to grow.

    Where Microsoft really needs to shape up is the Online division. If they could just break even, then it'd be equivalent to a 10% increase in Windows earnings.
    Apr 16, 2013. 12:35 PM | 1 Like Like |Link to Comment
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