Q4 2002 26 points to fundamental MSFT.....
hmmm, a one time charge.... who could have predicted that? :0)
0. wow... MSFT has done an about face, they actually repurchased more shares this quarter than they issued in ESO grants.... for the year they repurchased 128 million shares, which is a substantial reversal... they appear to have finally recognized the problem..... and not only that, they only issued 41 million new option grants for the year....... substantially down..... they have indeed recognized a very big problem.... and probably why their current assets minus current liabilities is coming down.... they may even be able to work these "over the top" options off (802 million total) in about 5 to 10 years.... does this make MSFT fundamentally strong? no, but it doesn't hurt....
1. MSFT released their true Pro forma Earnings for Q4 2002..(at the end of their earnings report)... and these state that MSFT only really earned .16 cents, not .28 cents as you all were led to believe, it is less because now the SEC is about to require companies to take into account the expense of paying employees all their forms of compensation.......including ESO's (employee stock options).......and MSFT is preparing for that day when this will happen.....MSFT is preparing for that day by issuing a second set of earnings numbers that is more realistic at the end of their report......also the true total earnings according to these issued Pro forma earnings in the last 12 months is .96 cents.......... now those are some pretty pitiful true earnings......
2. MSFT made $1.525 billion in the Q4 2002 quarter if you leave out this major expense of paying employees, if you do include this obvious expense, it is $0.903 billion.... this annualized is $6.1 billion........ that divided by all dilutive instruments (total share count of 5.8 billion including outstanding ESO options that are dilutive at todays stock price) is about $1.05 per share, considering this is a recession, let's give them the benefit of a doubt and triple it... so it maybe someday $3.00 earnings for a good year....if you instead put the same $53 you would spend to buy a MSFT share into a treasury bond yielding 5% with complete safety, you would be getting $2.65 in actual earnings in your pocket from this source with zero risk instead..........
that is why Warren Buffett does not and would not invest in MSFT..... proven to be a smart move for four years now even through a raging tech bull market......MSFT is having trouble with even the $70 price level because of these pitiful true earnings.....
3. MSFT makes about $10 million per day of pure profit 365 days a year for the last 12 months....including all true expenses (that they conveniently leave off the earnings releases to the street), yet with your cut per share of this $10 million, you couldn't even buy 1/4 of a single french fry with this money you would be getting..... yet you are risking about $50 for this type of return.........That puts in perspective how really "profitable" your money is brought to work for you by your management, and remember, a third of that money is coming from "treasury bond investments" when they have investment gains... course "one time" losses when their stock market gambles turn into losses........... that is how badly operations is performing per share...... and how ridiculously overvalued MSFT became four years ago......
4. MSFT has $35.8 billion in current assets minus current liabilities as of Q4 2002 (which is actually down from the quarter before), which is about 12.4% of the share price per share of about $50 a share (considering all potentially dilutive instruments to the MSFT share count), if someone were instead to put their equivalent share price in a treasury bond, they would get about 10% in cash in about two years, where if they kept it in MSFT stock, MSFT employees and management have said that there is no way in h*ll that they will give shareholders any of that money sitting in the bank........ so i would assume that includes the next two years...... so now you have a way of getting your hands on an equivalent amount of money in a shorter period of time than MSFT has said they will ever show you any of that money that you are supposed to have control over............
let's put it another way, if all shareholders of MSFT put their money in Treasury bonds instead of MSFT stock, they would get about $36.0 billion in returns in 2.2 years..... MSFT took more than 10 years to buildup this cash, (and that money came not from sales of products, but from employees prepaying their wages over at MSFT in the form of ESO's) that is how badly MSFT is using your cash........ and MSFT earnings are not predicted to grow any faster than just leaving that money in treasury bonds let alone the stock market in general........ now that is the scary part.........
5. in the last five or six years, MSFT has been creating and selling new MSFT shares to the market, collecting money for selling these (new) shares and putting that money in the bank as cash flow..... the amount of money they have received by doing this, plus the tax credits they have gotten because of selling these shares, plus the "investments" they've made in the stock and bond market, have added up to about $36.5 billion in cash........ which equals the amount of "current assets" (minus current liabilities) they have sitting in the bank....... this means that all of their profits from operations have been instead going to paying expenses...(mainly employee pay expenses).... meaning, MSFT has become a non producing Company........ operations have become immaterial... they make about what they are truly spending (including all forms of employee compensation)
6. MSFT has suspended the program where they legally insider traded their own stock thru put warrants in order to make money on its stock.... something that has resulted instead in $billions of dollars in losses because MSFT stock did so badly for going on four years.... so they bought back all outstanding Put warrants because of the massive losses they were experiencing...... let's hope they don't start gambling in the market on their own stock again..... and what's worse, it was all legal to insider trade their own stock, they legally insider traded their own stock..... yet still couldn't outwit the market.......
7. MSFT paid no federal income taxes or severely reduced taxes for many of the last several quarters in the last four or so years...... a scheme in which shareholders instead bear the burden of paying employees instead of MSFT's operations........ resulting in a lot of MSFT's real cash flow..............if MSFT issues less options in the future, (which it looks like they have started already) that means their cash flow will dry up by that much in the future.....
8. in the last two years, MSFT added 313 million shares to its basic float of shares.... nearly $17 billion in dilution in just two years (it would take about $17 billion to buy back all these shares).... and that's after ALL buy backs MSFT has actually done..... which is nearly the same number that they received in earnings during the same time period....meaning MSFT shareholders have gone no where fast....which you can see in their share price since it hasn't gone anywhere now for almost four years........
9. MSFT has more outstanding options in value than they do have cash to be able to buy enough shares to prevent any future potential dilution.......
10. MSFT makes more money from its stock and option schemes based on its own options and the tax kickbacks it uses than it makes from profits from selling its software.
11. MSFT, if it paid employees in cash instead of issuing new options every year diluting your existing shares, would have LOST money in the year 2000.... (this is what they show the IRS (and why they are able to pay no income tax most of the time), yet they fail to show you shareholders these IRS figures)..... anybody see something wrong here yet?.
12. MSFT is now losing money on stock investments in the stock markets, investments that they supported past earnings with exaggerating growth..... that's a loss to earnings growth for future quarters that don't have these investment gains to look forward to......and why MSFT has been showing negative growth in earnings for the past several quarters.........and the bonds they have shifted too are underperforming any growth they used to show..... Guaranteeing slower growth....
13. MSFT claims investment gains as regular earnings in earnings releases.... yet when it loses money in these same stock market gambles...... MSFT takes one time charges from these same earnings..... a clearly manipulative way to report earnings........
14. MSFT's stock price is less than it was Four years ago......... something other well managed stocks are not experiencing......
15. MSFT's P/E is about 30 based on earnings estimates that do not include one time charges or option expenses or investment losses, when these true expenses are included the PE.... it is sometimes double ..........true expenses that they are not reporting to you shareholders, yet do report to the IRS, ..... and MSFT's growth is far less than either number besides......... long term MSFT has in no way shown that they could ever get back to even 30% growth let alone 60%..... yet the stock price is based on this PEG.......
16. MSFT's Xbox will dilute margins so much that total earnings to total sales will be effected negatively for years. Revenues will increase dramatically, due to hardware sales with losses on each sale.....but none of it will translate to earnings for years to come... if ever......and only then if Sony and Nintendo decide to lay down and die........ remember total sales were only $9.4 billion for the entire industry including games in 2001..... with cut throat competition, margins are less than 10%..... even negative for MSFT........ even if MSFT were to take over the entire industry, the money produced per share would only be 15 cents for this last year........ and that's if Sony and Nintendo just disappeared, which will never happen......(update Q3, XBOX sales are now slowing beyond even the most pessimistic projections, guaranteeing losses far beyond the three year estimates, probably forever...MSFT in the Game Console Market is now dead last in total market share, and market share of Game sales too, and fading...... already... MSFT claims "one" of the best introductions, but failed to mention the only other two competitors had even better introductions, making XBOX dead last, and getting worse from there on...... )
17. MSFT will have one time charges due to settlement after settlement to companies like AOL and BEOS and SUNW and to the EU and to other countries and to consumer Civil Suits in the range of $billions of dollars each, creating even less value per MSFT share.......
18. MSFT loses money on all of its .Net strategies and other strategies (including MSN and MSNBC), and loses money on XBOX..... the only things they make an operating profit on is it's core business of OS and Office. yet they are transitioning these profitable businesses for the losing strategies of the .Net........
19. MSFT's scheme of getting kickbacks from the government in the form of Taxes, can only work if the stock continues to go up....... which can no longer happen, if it is already overvalued by more than double according to it's P/E. the stock has stagnated for four years, and even this can collapse the entire scheme. MSFT is already showing signs of the strain on its own stock option scheme..... Cash flow will dry up if Employees refuse worthless options on a declining stock and demand cash instead..... a lose lose for MSFT shareholders.... or if they are awarded ever increasing reissued options, the stock also declines because of the added dilution.... still a lose lose for shareholders....... you are all caught in a very bad situation...... figure it out, before it is too late.......
19. MSFT reissued replacement ESO options when its stock went down to cover "out of the money" ESO's, creating a win win for employees no matter if the stock goes up or down..... this situation creates a lose lose for shareholders though, who got no such get out of jail free card.......... if MSFT replaces options again, it will mean a total collapse of the entire MSFT scheme within days after a new reissue because shareholders are starting to wake up to this insult to their own shares........... it will be a catastrophe for the entire market...... the situation is becoming closer at hand every day that MSFT stock is reevaluated in the market.......
20. MSFT in the internet Server market, has less than 28% market share, and has been losing share by about 1% per month for many months until recently ever since the code red worm came out, when internet sites became fed up with poorly secured buggy software and began switching to alternative server software sources......(from Netcraft)...
21. MSFT stock in the stock market, has been losing ground to other company's stock for four years after both a raging bull market, and a total collapse of that same market.......Meaning MSFT has underperformed the whole market for the entire period.....
22. MSFT in the ISP market, doesn't even have 6% market share, and that Share was almost cut in half last year, and is losing share constantly, even with their promotions where some MSN users got two years free, or equivalent amounts of merchandise....., when MSFT reports higher growth rates, they are on much smaller numbers than the rest of the ISP market, even AOL nearly added more users in a single year than MSN has altogether..... even with AOL's lower growth rate but with its massive base.......
23. MSFT has 802 million options outstanding, if it wanted to keep from diluting its share count any more, it would need to buy back $40 billion worth of stock, yet it only has $36 billion to do it (current assets minus current liabilities)..... see any problems yet? that means guaranteed dilution, on top of that, MSFT granted for example 650 million options in the last 3 and 1/2 years. if MSFT were to stop issuing options altogether, its cash flow would dry up, because most of it came from these ESO's and the tax credits produced..... meaning the stock would collapse, because investors now look to cash flow as "true" company worth per share...... but if MSFT keeps issuing ESO's the dilution becomes staggering, so the stock price collapses..... because investors now look to cash flow per true share count to measure "true" company worth........ anybody see some problems there???? well if you don't, the market is telling you loud and clear.......
24. win lose or draw the antitrust decision, MSFT will live or die by how they play the "game" going forward, if MSFT goes back to the way they used to be, where they won the game, by making sure everybody else wins too, then they will be successful, if they continue on this current path of destruction though that they started about five years ago, where in order for them to win, they must crush their suppliers, their customers, their competitors, their government, everyone..... then they will fail as a going concern, the choice is not anyone else's except MSFT's..... let's hope they do the right thing.... (game theory).....
25. Netscape's IPO was the very start of the internet revolution and the beginning of the great bull market, MSFT's refusing to settle , before the judge ruled them an abusive monopoly in march/april of 2000 for crimes against this new IPO and this new technology and this new market, was the pin prick that burst the tech bubble, and caused the great crash.......... i don't know which is worse, the thought that the arrogance of MSFT brought the market down, or the fact that they crushed the cause of the great bull market in the first place.....
and you wonder why MSFT's stock is doing so badly..... well duhhh........ when you change from a philosophy of win win for you and everyone around you as MSFT had before 1995 to one of win at the cost of everyone around you as MSFT has demonstrated ever since 1995, then you are doomed to failure......
jon. |
