MSFT Rising With Markets
The markets are staging a wild rally as lower yields in Italy and strong housing numbers are producing a major snap back from yesterday. Shares of MSFT are up, although less than the rest of the tech market. Upcoming catalysts include Windows 8 next year; entrance into the tablet market; Windows Phone 7 / Mango rollout and adoption with hardware partner Nokia; strides against current market leaders in cloud computing; making money in the online business, including integration of Skype and improving the search / display business; and continued evolution of Kinect and next generation Xbox. The stock currently trades at 6.9x Enterprise Value / TTM Free Cash Flow.

To Compete In The Cloud, Microsoft Will Have To Sacrifice Margin (Bloomberg)
Microsoft’s push into cloud computing will help the company compete, but it also will hurt profit margins. The company’s cloud software lets corporate customers pay a subscription to manage data with software stored and run on Microsoft’s servers. The cost of which means the company may miss profit estimates for fiscal 2012 according to Goldman Sachs analyst Heather Bellini. That said, no financial data has been released on how Microsoft is doing in the space. If the company really wants to convince the world that it's serious about cloud, it should tell the world how those products are doing.

Bing Gains Search Share At The Expense Of Partner Yahoo! (comScore)
Bing has managed to gain enough market share that it's basically tied for the number-two position in U.S. core search. Unfortunately, those gains have come from its partner Yahoo, rather than its competitor Google. The bigger search picture is still the same, however. Google dominates with more than 65% share, and the Microsoft-Yahoo deal hasn't really dented that. At least it didn't gain any share this month, unlike the previous two.

Chrome Dethrones Internet Explorer As The Most Used Browser (ComputerWorld)
Google Chrome continues its incredible rise, finally overtaking Microsoft's Internet Explorer as the most-used version of a browser, according to a study done by StatCounter. This only applies to Chrome 15 overtaking Internet Explorer 8. If you lump all versions of all browsers together, Internet Explorer still has the greatest marketshare: Chrome 15 (24%), Internet Explorer 8 (22.9%) and Firefox 8 (14%).

Based On DCF Valuation, Microsoft Is Highly Undervalued (Seeking Alpha)
Based on discounted cash-flow methodology (which you can derive and justify any valuation you want), Microsoft is significantly undervalued. Fair value is $39 per share, a significant increase over current levels. Microsoft has an excellent combination of strong free cash flow generation and low financial leverage. Free cash flow margin should average about 29.4% in coming years. Total debt-to-EBITDA was 0.4 last year, while debt-to-book capitalization stood at 17.3%. And the firm sports a very nice dividend yield of 3%+.

Jack Abramoff Explains The Return On Investment For Lobbying: 22,000% Is Surprisingly Low

from the the-money-game dept

We've talked a lot about the political process and how things work in DC to get things like SOPA pretty far along, even as the public seems to be almost universally against it. As you hopefully know by now, Larry Lessig has been focusing his attention on the issue of the deep-seeded corruption in the way our government works today, and his recent book, Republic, Lost focuses deeply on the issue. A few weeks back, Lessig did a fantastic interview on the subject with the Boston Review. In it, he describes how Congress picks up on unpopular legislation for the sake of scaring people (on all sides) into donating to their campaigns:

In the first quarter of this year, what was the number one issue that Congress addressed? In the middle of two wars, a huge unemployment problem, huge budget deficit problem, still issues about health care, still no addressing global warming�what�s the number one issue they addressed? The banks� swipe-fee controversy. Why do you address the banks� swipe-fee controversy? There is not one congressman who decided to run for Congress because he thought, "I'm going to deal with the problem of the banks' swipe fees." It's only because if you can dance as a congressman with a little bit of uncertainty of which side you're going to come down on in this controversy, millions of dollars gets showered down upon you because there's $19 billion on the table depending on how this issue is resolved. So there Congress is driving the agenda in part because of the fundraising opportunities the agenda produces.

Indeed, this is part of the reason that some have been suggesting that the supporters of SOPA in Congress really aren't that upset that it's been delayed. Because this just gives them another month to fundraise on the issue.

The really telling line, however, in Lessig's interview, is about how we've turned Congress into 535 "independent contractors," using legislation as a way to arbitrage fundraising, and how there aren't any debates in Congress itself anymore. It's just elected officials making veiled pleas to donors via C-SPAN:

Switch to C-SPAN covering the U.S. Congress and it's a completely different picture. You can't see it, because they don't allow the camera to pan around, but the hall is empty, people coming to speak just to C-SPAN--they're not speaking to each other--all of the activity of negotiation and deliberation is done outside the chamber; there's no deliberation, so you just have to ask, "Why did we create a Congress?" The framers didn't sit down and set up a Congress so they could imagine these 535 independent contractors all arbitraging fundraising opportunities. If that's what the institution is, then let's just shut it down.

And, of course, tied into all of this is the lobbying process. It turns out that the most famous name in lobbying, Jack Abramoff, is out of jail these days and happy to talk to the press. The folks at Planet Money recently talked to him about the ROI on lobbying efforts, and you begin to get a sense of the scale of things. A company has no problem dumping $100,000/month into a lobbying operation if the end result is changing a law that will save them $4 billion. The report talks about a study of a particular lobbying effort that had an ROI of 22,000%. Yeah. That's a big number. But Abramoff's first response when asked about that study was that he was "surprised it's so little." Obviously, that only happens if you win the lobbying fight. If you lose, it's purely a negative ROI. But that also explains why the fights over these bills can get to be so fierce.

Unfortunately, for the tech sector, this actually may mean things are going to get worse. While Congress is aware that the internet world woke up and spoke up over SOPA, they're also salivating over the possibility of turning that into campaign contributions. So expect plenty more legislation targeting the tech sector in the coming years. It's going to be too lucrative to not do that...

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Monday, January 9, 2012

Making Money on the Internet

Jack Abramoff Explains The Return On Investment For Lobbying: 22,000% Is Surprisingly Low

from the the-money-game dept

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