Microsoft Sputters on Spending Concerns

SAN FRANCISCO -- Microsoft(MSFT Quote) kept its 2009 projections intact on Thursday, but investors ran for cover at the company's forecast for more spending.

Already trading at only 12 times forward earnings, shares dropped $2.11, or 7.7%, to $25.41 in recent trading.

With most of Microsoft's product launch cycle behind it, the stock is re-exploring territory it left behind in September 2006.

Analysts ratcheted down price targets Friday after the company said it would put more money into building its online business, which -- with or without Yahoo!(YHOO Quote) -- will include acquisitions.

Citigroup analyst Brent Thill wrote Friday that the stock's low price-to-earnings multiple reflects investors' fear, uncertainty and doubt: fear that the product cycle will never deliver margin expansion, uncertainty that Microsoft will ever do a deal with Yahoo! and doubt that further online investments will pay off.

Thill dropped his one-year price target to $36 from $41. Microsoft is an investment banking client of the firm.

Despite missing EPS estimates by a penny, Microsoft's fourth-quarter performance, was relatively strong, as as bookings and unearned revenue, which provide a window into future results. During the quarter just ended, bookings grew 23% year over year, while the unearned-revenue balance grew 21% year over year and 26% sequentially to $15.3 billion.

Unearned revenue was driven by high contract-renewal rates, particularly in the servers business, which has had three new releases since late 2007. And Microsoft's refresh of its SQL database server is due out early in the fiscal year.