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Tuesday, May 10, 2011

Microsoft Buys Skype: I Feel Poorer


Step down please.
Nothing agitates a value investor more than bonehead acquisitions and this Skype purchase certainly looks to be up there. The Skype acquisition comes less than a month after I bought into Microsoft. My argument was the low valuation for great products like Windows & Office created a compelling investment opportunity AND the solid balance sheet provided additional safety. 

Well, it certainly seems that a chunk of Microsoft's cash hoard is now gone. Don't get me wrong I like using Skype, however buying it for $8.5b is irresponsible. According to a Wall Street Journal report, Skype is yet to even turn a profit! Sure there will be some synergies and opportunities to integrate Skype into Microsoft offerings but at $8.5b I don't see how the purchase adds to the present value of Microsoft's future cash flows.

In my opinion, the acquisition is simply Steve Ballmer, being Steve Ballmer and wanting to be the center of attention. Years of failed product launches at Microsoft have caused the spotlight to shift to more successful tech giants. Ballmer is trying to buy his way back into the game, whatever the cost may be. Microsoft needs new management in my opinion.

Disclosure: Long MSFT

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3 comments:

Anonymous said...

Your title made me chuckle, then sad. I hope this isn't a harbinger of things to come out of MSFT. In some ways this is worse than Intel blowing a load of cash on McAfee.

hardcore value said...

Yes I agree, hopefully this is their only mistake, but that Yahoo bid makes me even more scared.

polycom ip 550 said...

Skype was "the" VOIP during the time of acquisition, therefore the hefty price tag. At least they got a better deal than eBay though.

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