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Software

Microsoft's Big Launch Falls Flat on Wall Street

Strategic Insights

— 2 min read

Microsoft, the world's largest software company, has just launched its biggest product rollout in history, but the stock has barely budged. The company released Vista, its latest operating system, Office 2007, its updated productivity suite, and the Zune, its first foray into the portable music player market. Despite the excitement, Microsoft's shares have been stagnant, hovering around $29 (U.S.). Analysts believe the market has already priced in the new software release, and they are waiting for other catalysts to propel the stock. The company's forecast of 13-15% growth in fiscal 2007, up from 11% a year earlier, also seems to be factored into the stock price.

Key Takeaways:

  • Microsoft's stock has not reacted significantly to its biggest product launch in history, despite releasing Vista, Office 2007, and the Zune.
  • Analyst Kirk Materne of Banc of America Securities LLC has a "neutral" rating on Microsoft shares and a 12-month target of $31.
  • The market has already priced in the Vista launch, and investors need to look beyond it to gauge the potential for upside to fiscal 2007 and 2008 estimates.
  • The Xbox 360 video game console is forecast to have shipped more than 10 million units by the end of the year.
  • Microsoft's sales are expected to grow between 13-15% in fiscal 2007, up from 11% a year earlier.
  • The company's Zune has features that the iPod lacks, including wireless tune sharing and an FM radio, but the device is thicker and bulkier.
  • Microsoft is forecasting shipping one million Zune players by June, compared to Apple's 39 million iPod players in the 12 months ended Sept. 30.
  • Analyst Peter Misek of Canaccord Capital Inc. boosted his price target for Microsoft to $35 from $30, citing favorable macro conditions, widespread adoption of Vista and Office 2007, and better-than-expected returns from the Xbox 360.

Statistics:

  • Microsoft's stock has hovered around $29 (U.S.) for the past month.
  • The stock shed a few pennies on Nov. 30, the day of Microsoft's biggest launch party ever.
  • The stock added a mere 3 cents on Nov. 8, when Microsoft executives said its new software was finally ready for businesses.
  • Microsoft's consolidated sales are forecast to grow between 13-15% in fiscal 2007, up from 11% a year earlier.
  • The Xbox 360 console is forecast to have shipped more than 10 million units by the end of the year.
  • Microsoft's Zune is forecast to ship one million units by June.
  • Apple sold about 39 million iPod players in the 12 months ended Sept. 30.

Sources:

  • "Microsoft's Big Launch Falls Flat on Wall Street" by Simon Avery, Technology Reporter
  • Banc of America Securities LLC research report by Kirk Materne
  • Canaccord Capital Inc. research report by Peter Misek
  • Thomson Datastream
  • Microsoft Corporation
  • Apple Inc.

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