This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Microsoft Gets Stung by MSN Butterfly

A big part of Microsoft's (MSFT - Get Report) mess is its also-ran MSN search engine.

Shares of Redmond, Wash.-based Microsoft plunged 11% Friday in the wake of Thursday's soft quarter and tepid guidance. The world's largest software maker attributed the miss to heavy spending in a number of areas, including the Xbox 360 product costs, accelerated hiring, more R&D and heavy marketing as the company prepares for the launch of Vista, the new version of its flagship Windows operating system.

But another key factor in Microsoft's surprising shortfall was the rising cost of competing with the better-positioned Net players, notably Google (GOOG - Get Report) and Yahoo! (YHOO - Get Report). Wall Street knows Microsoft is spending freely to play catch-up when it comes to its MSN search engine, whose corporate emblem is a multicolored butterfly. But Thursday's setback makes clear just how tall the task is going to be.

"Search investment at Microsoft is not new news, in our view, and has been anticipated by both Google and Yahoo!," writes Merrill Lynch analyst Justin Post in a note to clients. Merrill Lynch rates Microsoft as neutral. "Despite investment, we expect Microsoft to continue to lose advertising share in CY06 (search revenues were down in C1Q). Microsoft indicated management would discuss its MSN division investment plans in more detail at its July 28th analyst day, and competitive investment will continue to be an investment risk for the sector."

Indeed, Microsoft has made no secret of its desire to grab its share of the exploding market for Internet advertising. Last week it hired a new chief for MSN -- Steve Berkowitz, who is credited with turning around IAC/InterActiveCorp's (IACI - Get Report) Ask.com business.

MSN has recently gotten kudos for the launch of its new AdCenter ad buying program that allows companies to target their messages to specific demographic groups. But that service isn't going to be enough to improve MSN's performance, analysts say.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
SYM TRADE IT LAST %CHG
GOOG $524.22 -1.24%
IACI $73.80 0.68%
MSFT $46.28 -2.77%
YHOO $41.66 0.87%
AAPL $125.01 -0.63%

Markets

DOW 17,841.98 -86.22 -0.48%
S&P 500 2,080.15 -9.31 -0.45%
NASDAQ 4,919.6440 -19.6830 -0.40%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs