Tuesday, July 8, 2008

MSFT showing signs of desperation

This really goes on to show the pathetic situation of MSFT. Most of the folks here and elsewhere like to blame the YHOO BOD, but the real story here is that MSFT can't let go of YHOO. This is their last ditch effort to try to acquire YHOO for cheap and hoping that it doesn't tank their stock any more than it has. Its a gamble that they will most likely lose. After Aug1, Yang will win the shareholder vote and the only way MSFT can acquire them would be at a price $33+ and they'll get a much weaker YHOO compared to when they started bidding. Yang is not desperate to sell, especially if the buyer is MSFT. But that is the only move for MSFT on the chess-board, so it has no choice but to pay up.

MSFT is like the guy who bids 20% below KBB price for a used car, and stands in line for public transportation every day, hoping that someday the bid will succeed. Yes, indeed they will succeed one day, but then realize that what they ended up buying was a lemon, because YHOO in this case is a fast depreciating asset. Its just the nature of the industry and the strong position of Google, more than anything else. Yang has managed to sustain YHOO against the GOOG juggernaut. Compare his performance in internet domain to Gates / Ballmer @ MSFT or the guys running AOL. Replacing Yang will only speed up the decline of YHOO.

Those who still like to badmouth Yang and praise Ballmer's conduct throughout this process, I suggest looking at the numbers. YHOO is up about 25% and MSFT is down about 20%. That is the real story. Everything else is a shell game, by folks who have their own agenda.

I'm hoping that YHOO hits ~$25 tomorrow so I can sell and get ready for the next iteration, when MSFT "walks" again after Yang wins the Aug 1st shareholder vote.

For folks paying attention to my comments - I picked the recent bottom on YHOO at ~$19.75 and also predicted ~$25+ on MSFT, which happened last week. My other prediction is GOOG and MSFT would approach each other in market cap in about 6 months. They are getting closer. The difference is down from about ~$91B to ~72B, since I first wrote about this. The GOOG earnings report is due soon and that should help as well.

My earlier comment on Jun. 24th is worth repeating here for context.

Rav (URL) said:
Jun. 24, 1:38 PM

1. MSFT talks to YHOO about acquisition.
YHOO goes up and MSFT tanks...
2. MSFT walks.
YHOO goes down and MSFT stuck in neutral.
3. Go back to step1 for next iteration.

While MSFT keeps playing those games with YHOO the end result...
- YHOO gets weaker in the market, but still stays significantly higher than its pre-MSFT-bid level of $19
- MSFT loses about 5-10% on every iteration above. Its already down from about $32.5 pre-bid to about $27.5. There's another iteration in progress and the walksters are trembling.
- GOOG improves its market share v/s YHOO+MSFT and laughs its way to the bank. It also has YHOO trapped in a deal where it fills GOOG's coffers one way or the other..

This is great if you are GOOG long, MSFT short and can time the waves on YHOO.

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