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

To: Bearded One who wrote (10188)	8/19/1998 1:33:00 PM
From: Kevin Podsiadlik	Read Replies (1) \| Respond to of 74651

It sounds to me as if you are attempting to evaluate MSFT as a "value" stock instead of a "growth" stock. Consider: Suppose that Microsoft stated publically that it would never ever pay dividends, nor would it ever buy back its stock. What would happen to the price? Never?? What kind of copmany would be so stupid to make such an absurdly long-range claim? MSFT does not pay dividends or buy back stock because they feel they have better things to do with their cash. That may change... twenty years from now. So earnings and cash flow and what not are just help in guessing how much is left at the end of the day to distribute to shareholders. The point is, "the end of the day" isn't even on the horizon as far as most MSFT shareholders are concerned.

To: Bearded One who wrote (10188)	8/19/1998 2:37:00 PM
From: Reginald Middleton	Read Replies (1) \| Respond to of 74651

<Actually, Price/Earnings, Cash Flow, market share, # of hits per day, are all approximations.> Actually, you are wrong. Cash is King, and cash flow is the measure against which all other measures are used as a proxy. <There are only three ways to make money on ownership of any financial instrument: 1) Income derived from ownership (dividends, stock buybacks) 2) Selling it to someone else 3) Putting it up as collateral for a loan (margin)> How are stock buy backs a form of income derived from ownership? How does putting stocks up for a collateral for a loan make you money? All I see is exchanging one form of capital for another. <Consider: Suppose that Microsoft stated publically that it would never ever pay dividends, nor would it ever buy back its stock. What would happen to the price?> Nothing much. Consider: Suppose the US government said it would never buy back its dollars with gold and its dollars will no longer be supported by the gold standard. What did happen to the price? history doesn't lie! You are totally ignoring the concept of an ongoing entity and the assumption of perpetuity. <So earnings and cash flow and what not are just help in guessing how much is left at the end of the day to distribute to shareholders.> This is incorrect, see the aforementioned. <I don't think that Microsoft has or will ever have 300 billion dollars of distributable assets.> So. MSFT is not valued from liquid, distributable assets. The Microsfot brand name, the lock that they have on distribution channels (eg. the windows desktop), the quality and depth of management, and many other attributes are valuable assets that have been used to trounce the competition, yet are not distributable upon liquidation. You are using a bad proxy in your value concept.

To: Bearded One who wrote (10188)	8/19/1998 2:40:00 PM
From: Gerald Walls	Read Replies (1) \| Respond to of 74651

So earnings and cash flow and what not are just help in guessing how much is left at the end of the day to distribute to shareholders. I don't think that Microsoft has or will ever have 300 billion dollars of distributable assets. Thus, the stock in my view is overvalued, and in the 'Mark McGuire baseball card' category. Don't you think it's a bit absurd to attempt to value any going concern with a positive return on equity at liquidation value? This is by definition assigning a zero return on those assets. This is the sort of analysis you'd use to evaluate a bankruptcy play. If you think the only reason to own a stock is dividends or buy backs then stick to utilities.

To: Bearded One who wrote (10188)	8/19/1998 4:51:00 PM
From: dumbmoney	Respond to of 74651

Consider: Suppose that Microsoft stated publically that it would never ever pay dividends, nor would it ever buy back its stock. What would happen to the price? As long as the business is good and growing, the stock price will increase. It doesn't matter whether or not the company generates "excess" cash (more cash then it can profitably reinvest). Excess cash isn't a bad thing, but it's not what makes a company valuable. Furthermore, the value of a company includes the cash it holds, so even a company that stops growing and "never" distributes cash can increase in value indefinitely.

To: Bearded One who wrote (10188)	8/19/1998 6:03:00 PM
From: Daniel Schuh	Read Replies (1) \| Respond to of 74651

Not that I want to get involved in the Regimodel debate, but in one sense, Microsoft pays substantial dividends presently. According to CFO Maffei, employee options currently generate costs about equal to Microsoft earnings. A lot of stock buybacks happen to cover this. So, in some sense, essentially all currently earnings go back to shareholders as indirect dividends through this channel. The Mind of Reg(TM) will be happy to explain how Microsoft doesn't buy back stock. They, um, fund the meritorious compensation system or something like that. I'll dig up the CFO's thoughts on the matter if anyone cares. Reggie knows better, of course. Cheers, Dan.