Monthly Archives: February 2008

Microsoft PE=16, forward PE=13!

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Wow.    As Yahoo rebuffs them and Microsoft shares continue to take a beating from  what appears to be Yahoo aquisition unhappiness, the PE of this mega company is looking nothing short of spectacular.    Some would argue that Microsoft is slowly dying due to the massive changes in the way people and businesses use software, but it’s foolish to think Microsoft’s prospects are dim under the current conditions.   In my view they are simply making too much money, and remain a key player in a key industry, to deserve this low market valuation.  

If the Yahoo merger happens the PE at MSFT will take a hit, but it would clearly remain well under 20, a very modest PE for a company that still has significant growth potential.

But, I guess like other investors I’m a herd animal and fearful, so I won’t be buying MSFT….quite yet.

Disclosure:  Long on Yahoo, no Microsoft position.

YaAOLhoo? Are you kidding?

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The Times of London is, I think, exaggerating a rumor that Yahoo and AOL might merge in an effort to find off the Microsoft takeover of Yahoo.      I don’t even think this is necessarily a bad idea if you made sure the management of both companies had the necessary shakeups to turn *both* companies around from what seem like desparate corporate positions.  However it just doesn’t ring likely to me at all, and begs the question of how the Yahoo board could make all this work *and* avoid the wrath of the market which probably will view the Microsoft offer as far more favorable than a pie in the sky possible AOL deal.    That said, I’m open to this possibility.    The main thing I’m *against* is more of the same from Yahoo.    Profits and share price matter more than any anti-Microsoft sensibilities, and the board should keep that top of mind at all times. 

Disclosure:  Long on Yahoo 

Wal-Mart for Nobel Peace Prize!

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Wow, this clever article by John Tierny  in New York Times Op-Ed (what a great news source now that the paywall is down!) suggests maybe the Nobel Peace Prize should go to Wal-Mart for lifting more people out of poverty than pretty much any other organization on earth.  He notes a notion that the best route out of poverty for the developing world is to make stuff for Wal-Mart to sell to … those of us who live in the developed world.

This is a provocative piece but it cleverly *should* get people to realize the complexity of economics, and the fallacy of ideas that prosperity in the developed world comes from exploitation in the developing world.  This last notion is one of my pet peeves because it is a very naive and inaccurate view of the way international economics works.   Systems that avoid capitalism and avoid interacting with capitalism don’t thrive.   In fact they perform abysmally as indicated by the experiences of early communism, and present conditions in North Korean and Cuba.    Prosperity comes from becoming part of the developing world through economic interactions.    This is not the whole solution to poverty, but it is an important part of that solution.   If well intentioned people would work to understand the importance of getting poor folks *involved* with the globalized economic experience  it would be easier to bring the billion+ in extreme poverty to a higher standard of living.     It does NOT end there of course.   I’m happy to see organizations try to force corporations to greater levels of worker responsibilities.  But that needs to happen *after* workers and countries show that they want to play the big game.   

As Tierney suggests, making stuff for Wal-Mart is probably one of the fastest ways an Indian or Chinese guy can feed their family.  What’s wrong with that?  (I’m serious – there are some problems with that approach, but I’ve gone on long enough here for now ….)

Microsoft v. Yahoo. They can’t seem to make an offer Yahoo can’t refuse.

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The big tech story remains the Microsoft offer to buy Yahoo, and on Wednesday a meeting at the Yahoo’s HQ in Sunnyvale, CA may seal the deal, though it’s more likely that negotiations will continue for some time after that meeting.

Microsoft may be wondering about the wisdom of the aquisition given how hard the market appears to have punished them for the offer.   Although other tech stocks were down last week, Microsoft’s 13% drop amounted to a loss in capitalization equal to almost the entire value of the Yahoo deal.   ie you could argue that even if Yahoo sold themselves to Microsoft for $1 on Wednesday, the boost in the merged company value would not make the two any more valuable than *Microsoft along* was worth before all this began.     That’s a lot of financial simplification but Microsoft must have at least somewhat more skepticism about all this than they did as they made this offer.

So, what are the likely strategies here?     It is clear Yahoo will reject the current Microsoft Offer which amounts to about $30 per share, and they are strongly rumored to be asking Microsoft for $40 per share.   I’ll eat my keyboard if Microsoft agrees to $40, but I do think they may immediately counter offer at about $34 per share.     Of course unless the inclinations of the Yahoo board change they’ll reject this as well.    I’m growing somewhat suspicous that the unreasonable $40 amount is not really an attempt to boost the sales price – it may be the best way for the Yahoo board to send negative signals, try to wait things out, and give Microsoft more chances to back out.   If Microsoft gets cold feet from the share price drops or Yahoo’s chilly reception of the merger idea, and then backs out of the deal, shareholder lawsuits against the Yahoo board are less likely and weaker.  The Yahoo board will simply say the $40 was a negotiating tactic that went wrong rather than a tactic to kill a good deal.

However I don’t think Microsoft is going to go softly into the night on this, and that will make all this very interesting.    They’ll offer more, and at even $34 per share Yahoo would be getting an amount approaching a 100% premium over their recent 52 week low of about $18 per share.  This is the price YHOO traded at following the bad guidance from the recent earnings call.  

It strains the credulity of this shareholder to see how the Yahoo board can argue that Yahoo has a realistic shot at being “twice as valuable” as they were last week in a reasonable time frame.   In short, we all know they can’t.    This may be a defect of market forces or employee attrition or lazy management or low morale or Google defections or whatever, but left to her own devices Yahoo is pretty much going nowhere fast.   I’ve been bullish on Yahoo for several years now and remain convinced that the company can eventually turn things around.  However I think this aquisition may be 1) part of that turnaround process and  2) presents an offer far too good to refuse without risking a share price meltdown.

So, looks to me that on Wednesday the Yahoo board will turn down the current offer, Microsoft will up the offer to about $34, and Yahoo board will turn that down too (probably the following week).  This will lead to nothing short of a Yahoo shareholder revolt as anxious investors watch a company throw away tens of billions of birds in the hand arguing they are seeking a few more birds in the internet bush.

Ha – even Mini Microsoft hates the deal.   An interesting salary debate over there along with the normal absurd whining from developers over their already very large salaries. 

Disclosure:  Long on Yahoo (but not for long!?)

New York Times on Microsoft and Mashups … and Mashup Camp 6 is coming!

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You know mashups have hit the mainstream when they hit the NY Times, and this article is a nice introduction to Mashups and why they have become a key component of “Web 2.0”.    

Mashups in music are songs that combine words and/or music from 2 or more songs, and internet mashups are similar – generally they are a combination of the information from 2 or more websites or data sources into one site.   Zillow.com, for example, is an excellent mashup that takes real estate information and “mashes it” with mapping information, so you can navigate homes and prices via maps as well as in other ways.    Also in typical Web 2.0 mashup fashion, Zillow offers “APIs” or “Application Program Interfaces”   which are tools that allow simple integration of Zillow into your own website.

Mashups are not new but as they, and other Web 2.0 sensibilities, become the backbone of the new internet they represent a significant new direction in online life and computing.    Although the internet started out as a fairly open environment, the advent of big money led many websites and services to force users to pay for content and services.   “Paywalls” at sites like the New York Times, Salon, and others meant that you could not get at the stories unless you subscribed.     These paywalls are coming down now in favor of advertising supported revenue models and more open environments where websites tend to share data and even advanced technologies in exchange for the benefit of appearing as a link or an information box within other sites. 

Still confused?    Frankly, I don’t think anybody can even hope to digest the tidal waves of innovation and information that flood over the internet on a daily basis.    But if you want to understand more about mashups there is no better conference than Mashup Camp 6 coming up in in Silicon Valley in March.    David Berlind and Doug Gold started these camps a few years ago and they are a superb way to get up to speed very quickly on how mashups are …. changing everything. 

Wall Street Journal is largely free … online via Google

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Thanks to Danny Sullivan for picking up a clever way to access WSJ articles without a subscription (and perfectly legally as well) by using Google News to find the articles and then clicking through to the stories.    

As TechDirt reported a few weeks ago Dow Jones had decided not to follow the New York Times and drop the WSJ’s paywall.    The revenue considerations are tricky, if not impossible to figure out in these situations.   NYTs has seen an explosion of traffic but I think modest increases in online revenues which were never a big source for them anyway.     The battle between print and online continues to rage and I think now everybody knows the inevitable conclusion – online will win, but won’t necessarily create a lot of profits for the winners.  

YahoOliver Twist to Microsoft “Can I have more please, sir?”

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Ina is reporting over at CNET that Yahoo is going to reject Microsoft’s current offer of about $30 per share and ask Microsoft for $40 per share at the Wednesday meeting.    I’m still in the camp that says Yahoo is not in a good negotiating position to make this demand, though contrary to what better connected folks than I suggest I’m guessing Microsoft will up the offer to seal this deal next week.   I say they’ll offer $34-35 at current MS pricing.   This is more than any reasonable definition of “fair market price”, and Yahoo’s board could only reject this at their huge legal peril. 

 I’m not a fan of class action lawsuits but Yahoo can probably expect a gigantic one if they turn down MS and then Yahoo tanks again.   This would probably  be resolved quickly by a board decision to go ahead and sell. 

I’d love to be a fly on Eric Schmidt’s office wall right now as Google’s role in all this is really intriguing.   They can let the merger go and assume MicroHoo can’t be competitive with Google, they can help Yahoo with monetization in a bold way to prop up Yahoo’s stock but effectively keep their one true competitor alive, or they can just sit and wait for it all to shake out.   Most analysts seem to think Google’s in fine shape competitively regardless of their decision and I’d agree with that.   In fact Yahoo’s stubborn refusal to look for the winning Microsoft combination here may be yet another nail in their corporate coffin.    I can’t help but think this is ego-centric thinking rather than the broad, practical, and innovative thinking that built Yahoo in the first place.    

Given that YHOO was trading well under $20 last week I just can’t see how they can make a strong case to Microsoft (or shareholders) that MS needs to pay a premium of over 100% on this deal.    That said, I do think Yahoo is undervalued in the technological sense – they have much of what Google has and have much of the potential Google has, yet they are capitalized at about 1/4 Google even with the recent Google stock meltdown and Yahoo stock upswing from the MS offer.   Yahoo’s a great company. Unfortunately they have failed dramatically for many years to use this greatness to be profitable and they have failed to make the case to Wall Street.  

What is the right answer in all this?     It’s simple:

1.   Microsoft should counter the $40 request with an offer of $34 per share at Wednesday’s MS stock price.

2.   Microsoft will keep Yahoo intact largely in current form for six months.   Yang and the Yahoo board will be given SIX MONTHS to kick whatever asses need kicking to make Yahoo more profitable.   If Yahoo’s looking healthy in six months they’ll stay on this course, but if they can’t fix in six, send them to the sticks and MS will take over in heavy handed form.

3.  Reorganize the languishing publisher programs at MS and Yahoo to compete more effectively with Google Adsense, which has a virtual monopoly in this space and accounts for over 40% of Google revenue.

Disclosure:  Long on Yahoo

Check out Furrier.org

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John Furrier  has been working in technology and starting technology startups for some time and his blog has a lot of good perspectives from a clever guy.    John was a founder of PodTech, the video startup, and I had a couple of nice talks with him at CES where the PodTech Bloghaus was a huge hit with hundreds of the thousands of bloggers swarming all over Las Vegas.

Yahoo – Game Over Dudes?

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Kara Swisher over at All Things D  has an excellent post about the Yahoo Microsoft merger where in my view she suggests correctly that the game is pretty much over.    Google won’t do much to get in to this mess (they’d almost certainly be prohibited from aquiring Yahoo due to antitrust rules), and Microsoft is unlikely to up the generous offer which now amounts to about $29-$30 per share depending on Microsoft’s share price at the deal.   Most importantly, the Yahoo board cannot turn this down without the risk of lawsuits from now until the singularity.    If Microsoft had only offered a few dollars above the sagging YHOO share prices last week this story could be different, but I cannot see how the Yahoo board can come up with a plan to keep the stock around $30 per share AND turn down the Microsoft offer.    I suppose Google might sweep in with a good enough partnership that investors would not be spooked, but that now appears less likely and frankly if anybody might have a hint about that it would be Kara Swisher who has significant insider information about Google.

Ergo, MicroHoo appears to be coming soon to an internet near you.

Disclosure:  Long on Yahoo.

Check your hosting plan!

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Some of us – I’m a good example – can be too stubborn about hassling with technology changes because I know that with technology stuff you always can expect the unexpected.   However sometimes this costs me a lot more than the value of the stress it saves me.

I’ve had many hosting plans for many sites over the years and it has been nice to see  the costs come way down from the old days.    

I’m just now switching my Verio shared hosting plan from the $50 monthly to the $13 monthly, and it looks like I’m getting better features at about a quarter of the cost.    Also switching my Godaddy “virtual dedicated” server plan, which I was not all that happy with anyway due to SMTP problems neither they or I could solve.    That plan still allows me to have many domains on the server, but cost is going from about $40 monthly to about $16.   

About five years ago I think I was paying something like $800 per month for a dedicated plan, and over at US History I think we may still be mistaken to run our own servers with all the associated costs for bandwidth and maintenance, but that system would be hard to untangle right now.

The morale of this story is simple:    Regardless of the size of the site you run you should review your hosting plan to make sure you are taking advantage of the new very inexpensive options available from most hosts.   Also, I think it’s a mistake to assume that the “elite” hosts are better than the cheap ones.  Virtualization (running one physical server as several virtual servers), IP sharing, and load balancing, and customer service quirks mean that the cheap plans can be *better* than the more expensive ones, even at the *same host*. 

Verio was very helpful *after* I asked them about options for reducing my costs, though they would have earned much more customer loyalty from me if they’d recommended a switch a few years ago when they changed my server but didn’t let me know I should be switching to the cheap plan.