MSFT Shares Down 8 Why I Dont Think

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MSFT Shares Down 8% - Why I Dont Think...

By: Andy Beal
2009-01-23

...its Due to Announced Job Cuts or Profit Decline. Microsoft missed Wall Street estimates for its quarterly earnings and announced it would...

... cut 5,000 jobs, but I dont believe either of these two factors play a major role in the 8% share drop this morning.

Ill tell you why and then Ill tell you whats really accounting for the decline in PPS (price per share) today.

First, the earnings miss. OK, so MSFT missed Wall Street expectations by 2 cents and its profit dropped from $4.71 billion this time last last year to $4.17 billion. But, its overall revenue grew from $16.63 billion to $17.1 billion in the same period. So, that suggests that the money is coming in, its just that Microsoft needs to shed some excess baggage expenses.

Thats why the company is shedding 5,000 jobs"about 5% of its workforce"over the next 18 months, starting with 1,400 going today. The company has obviously identified areas where its bloated and is taking action to reduce jobs in the areas of research and development, marketing, sales, finance, legal, human resources and information technology. However, the company is also planning to add up to 3,000 new jobs in the same time period - so this is more a restructuring than a mass layoff.

All told, Microsoft hopes to save $1.5 billion this year"which certainly helps with the bottom line.

OK, so why do I"a non-financial analyst dont forget"believe that Microsofts share price is down 8 points this morning. Heres the answer:

"[Microsoft] said it could no longer offer profit forecasts for the rest of the fiscal year."

Thats whats scaring the pants off Wall Street right now. It could well be that Microsoft doesnt expect to see a continued decline in profits, but at the same time doesnt want to try and predict an unpredictable market. However, Wall Street is absolutely lost without some kind of forecast from the company itself"just look at how they flap around in the wind, without guidance from Google!

In other words, Wall Street is slapping MSFT with a we dont know penalty on its PPS.

Whats your take on Microsofts announcement? What do you think of my assessment?

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About the Author:
Andy Beal is an internet marketing consultant and considered one of the world's most respected and interactive search engine marketing experts. Andy has worked with many Fortune 1000 companies such as Motorola, CitiFinancial, Lowes, Alaska Air, DeWALT, NBC and Experian.

You can read his internet marketing blog at Marketing Pilgrim and reach him at andy.beal@gmail.com.


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