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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: PMS Witch who wrote (42334)	4/17/2000 12:06:00 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 74651

re: "published 'E' almost useless" I heartily agrea, about earnings being "managed". Over the last couple of years, on other boards, I've torn apart various companies quarterly reports, concluding that they are elegant works of fiction by the Creative Accountants. For instance, Microsoft recently made a big increase in options granted. They are doing this in order to keep key people from going to dotcom startups. So, they get the benefit from granting options in the present. But the cost doesn't get officially counted till years from now. In effect, it's a huge and growing deferred expense. Another example: MSFT is a software company, with a sideline as a venture capitalist. Last quarter, they beat expectations, largely due to that sideline business. Intel did the same thing. Venture Capitalism is far more risky than their main business. I expect, at some point (maybe soon), they will have a downside earnings surprise due to this. And, when it happens, the Creative Accountants will call it a "one-time-only-lets-pretend-it-didn't happen" event. But this doesn't make their numbers useless. I can still use today's MSFT numbers, to compare them to MSFT's past numbers, and to compare them to other companies (who are playing the same numbers games, more or less). I can use the numbers, relatively, if not absolutely. MSFT was "managing" its numbers just as much in 1998, so I can usefully compare 1998 valuations with today's. You are right, though, that it makes PEG calculations harder. And, the fact that the Price/Sales ratio is today still twice as high as the 1998 bottom, is a warning flag, since you can't get creative with sales numbers.