Microsoft’s shares sink almost 10 percent

This morning Microsoft (MSFT) was trading at $31.91, it’s lowest price in almost three months.  This amounts to a 9% drop in price which is also its worse stock decline for over 34 quarters.

So as you would expect brokers and analysts are cutting their ratings on the software giant.

In fact, about 62% of analysts watching Microsoft have downgraded their share ratings to neutral.  Only 32% have buy ratings.

One of the main problems is that investors are concerned about Microsoft CEO Steve Balmer’s recent itch to shake up his executive team with the major reorganizations he did earlier this month.  The timing seems especially bad because Microsoft’s stock was having a stellar year.  It had a 32% year-to-date gain which made it the third best performer on the Dow Jones Industrial.

But now investors are less confident that Microsoft has what it takes to deliver healthy growth in the coming months.

Another reason for the stock sell offs is that Microsoft has missed it’s own revenue estimates.  Windows revenue was at $14.4 billion dollars but this was still $400 million dollars south of Microsoft’s own estimates which is one of its largest target misses in a while.

I have to wonder: will the Windows 8.1 update galvanize Windows sales again?

The bottom line is that the Windows product absolutely has to turn around for Microsoft’s stock to work.  In my opinion Windows is the lifeblood of Microsoft and if Ballmer can’t make a break through here Microsoft is in serious trouble.

UPDATE

Microsoft stock continued to plummet today; it’s now the biggest single day decline since April 2000 – it’s down 12%

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  • Tom

    If your thinking is that Windows is key to Microsoft’s future, then it is all over for Microsoft. We are entering the post PC era. Sales of laptops and desktops are down, and Windows has few in rounds on new devices. The smartphone market is showing signs of saturation already, and Microsoft gained very users there. Tablets are still growing and the Surface is DOA.

    If Windows is the key, then Microsoft’s last hope is the XBOne. It is effectively a “Windows” device, though not branded as such (because Windows hasn’t been a cool brand for a decade, which is another problem). If the XBOne becomes a “do everything” home entertainment system, it will sell a lot of units, but could also catalyze sales of phones, tablets, and whatever new devices appear. If it is done right, that is.

    • This is the thing: the video game industry has been in decline since 2009 so I think you’re right when you say that the XBOne needs to become a “do everything” home entertainment unit before it can lift Microsoft. In other words, the XBOne will have to do more than play Halo 3 for video game fanatics; it’ll need to become the central media hub for consumers in order to make a real dent in Microsoft’s bottom line.

      I mean, there are currently over 46 million Xbox Live subscribers and Microsoft is investing serious cash into this entire Xbox as a platform thing but the real problem as I see it is that Microsoft is suffering serious losses because of the hundreds of thousands of Android and iOS Apps out there that casual gamers love. Why pay hundreds of dollars for a video game system when I can just download “Cut the Rope” for 99 cents?

      That being said, on the one hand I think Windows through the Xbox line is Microsoft’s life raft, but on the other hand, unless they can carve a chunk out of the mobile market I don’t think they’ll survive.

      Yes, the Microsoft Surface was an honorable attempt but a failed one. And yes, the Windows Phone was another attempt; however it was abortive because it was too little to late. The iPhone and Android phones have eclipsed the Windows phones and I don’t know if Microsoft can recover from that (i.e. look at Blackberry)

      But I digress. I agree with your point the Xbox one will have to extricate Microsoft from it’s current financial woes or else it’s going to be bad news for Balmer – and I actually think this is going to happen. If you look at the latest sales figures, the Xbox 360 has been ascendant for 30 consecutive months. So if this is any harbinger of Microsoft’s success then it probably has hope.

      I guess we’ll just have to wait and see.

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