Microsoft Investing Brief: Is Yahoo the Future?

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MSFT (NASDAQ:MSFT) Up As Market Rises 

The market is continuing gains from yesterday as the euro debt crisis gets some relief despite home prices falling and AMR filing for Chapter 11 protection (it’s the last of the airlines to do so.) Shares of MSFT are up with the rest of tech. Upcoming catalysts include Windows 8 late 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 6.6x Enterprise Value / TTM Free Cash Flow.

Microsoft Partnering With Silver Lake In Yahoo Take Over Bid (BusinessWeek)
Silver Lake private-equity is working with Microsoft to bid for a minority stake in Yahoo, according to people familiar with the matter. Andreessen Horowitz is also weighing a possible bid for Yahoo (NASDAQ:YHOO). Microsoft, rebuffed in a 2008 attempt to buy all of Yahoo, would likely join other investors to safeguard its Web-search partnership with Yahoo and bridge any financing gap a buyout would require. Microsoft has no interest in buying all of the company, it’s looking at just 20%.

Nokia’s Windows Powered Lumia 800 Off To A Great Start – BGR
Despite analyst skepticism, Nokia and Microsoft’s Lumia 800 is off to a great start in the UK. According to an official statement, “Based on earliest data the sales start of the Lumia 800 is the best ever first week of Nokia smartphone sales in the U.K. in recent history. By our measures, we have gained significant smartphone sell-out share in the channels in which we are operating in the U.K.” The U.K. has been a huge market for Nokia in the past and “best ever first week” is nothing to scoff at.

Windows Phone Sees An Uptick In Users (VentureBeat)
According to calculations by WMPowerUser, Windows Phone may be getting a long-awaited second wind. Newly available app usage data indicate as many as 600,000 Windows Phones may have been purchased over the past two weeks alone. And users of the Windows Phone Facebook app has risen from 1 million users on November 11th to 1.1 million on November 25th. Microsoft has been tight-lipped on specific numbers but there has been a good bit of buzz around Nokia launching a Windows Phone in the U.S. in early 2012.

More Skepticism Surrounding Microsoft’s Entrance Into The Tablet Market (Barron’s)
Forrester Research has just produced a rather skeptical article about the chances for Microsoft breaking into the tablet market in a big way. Microsoft may already be too late to the party. “Windows really isn’t a fast follower. Rather it’s (at best) a fifth-mover after iPad, Android tablets like the Samsung Galaxy Tab, HP’s now-defunct WebOS tablet, and the BlackBerry PlayBook tablet…other players have come a long way in executing and refining their products—Apple, Samsung, and others have already launched second-generation products and will likely be into their third generation by the time Windows 8 launches.”

Only 27% Of The Global Mobile Phone Market Is A Smartphone (TechCrunch)
With all the talk of iPhone versus Android these days, it’s easy to forget that the majority of the world’s mobile users are on still on feature phones. A report from VisionMobile shows that, despite the sharp rise in smartphone shipments over 2010 and 2011, global smartphone penetration is at just 27%. As expected, in markets dominated by pre-paid subscriptions, the real battle is price where Nokia’s mid-tier Symbian platforms and BlackBerry consumer-targeted models still hold onto significant market share. Microsoft still has a chance to become a leader in the smartphone race.

Skype To Get Help From UK Communications Regulator To Work Through Carrier Restrictions (BusinessWeek)
Microsoft’s Skype unit will step up negotiations with British mobile-phone operators that keep Internet-based calls off their networks after the country’s regulator indicated it may intervene. Ofcom (independent regulator and competition authority for the UK communications) believes that restrictions on Skype’s services stifle innovation and it may take action if the blocking persists. Major mobile-phone operators in the U.S. do not block Skype.

Heather Leonard is the Microsoft analyst at Business Insider.

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