Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: 16yearcycle who wrote (9486)	7/19/1998 3:05:00 PM
From: Charles Tutt	Read Replies (1) \| Respond to of 74651

You claim to be a hedge fund manager, but don't know that companies commonly defer revenue in order to match it with expected expenses, warranty returns, etc.? And yes, Sun does it; see: sun.com under the heading "Revenue Recognition." JMHO, and certainly not to be construed as investment advice or a legal opinion.

To: 16yearcycle who wrote (9486)	7/19/1998 6:52:00 PM
From: Dell-icious	Read Replies (2) \| Respond to of 74651

I suggest you listen to the conference call. Maffei clearly explains the reasons for defering revenue including the fact that some of this money comes from yearlong licensing and subscriptions. Here are some quick eg : 1. Let's say I am an msn member and pay up for the whole year - would you not spread the revenue over the year instead of booking it immediately (in fact CD made exactly that mistake for it's travelers advantage etc clubs) 2. Let's say I am a company that plans to buy 100 copies of office a year but MS offers me a deal - a discount if I commit to it and pay up now. Then MS has scored all purchases meant for the whole year in one shot - but it was a whole years worth of sales though. 3. Finally, I sell a copy of windows but there is a 90 day period in which I need to offer free support - then the revenue may have to be split over multiple quarters and so on. Maffei clearly begged analysts to attribute something else - perhaps lower interest rates or fast growing economy and not deferred revenue to account for the super high P/E for MSFT. Mind you - I am long MSFT by a large amount - but I think this stock needs a breather - it has come too far too soon. I expect it to retrace to 90 or lower in the near term.

To: 16yearcycle who wrote (9486)	7/22/1998 8:41:00 AM
From: Reginald Middleton	Read Replies (2) \| Respond to of 74651

<"The CFO Maffei clearly said in the conf call that it's mumbo jumbo to add back the defered revenues. They are defered for a good reason."> If you read the piece I linked to a little earlier, I explained how this works. Deferred revenues are the equivalent of shareholder equity. You add back to profits any change (as in delta - both positive and negative) to deferred earnings. The earnings are deferred for a reason, and that reason is to offset unearned revenue. Since there are no stringent guidelines in the deferral process and we assume MSFT is an onging entity, we must deal in change of deferred amounts. If MSFT were to cease to function, customers would have a claim on those deferred funds that would be superior to that of shareholders and creditors. If you have Excel 97, I have a VBA app that reconciles net income for you and maps the revenus deferral change from year to year - adjusting earnings accordingly. If you don't have Excel 97, the article displays a list of formulas. It is for this reason (among many others) that I say earnings don't count for much. I was going to offer this article to SI for distribution, but they did not think it was appropriate for the SI crowd. If you think it is useful, mail the webmistress and let her know. The entire deferral process in terms of valuation and performance is explained in detail at rcmfinancial.com