Microsoft Frenzy Feeds Confusion

Uncertainty surrounding stock is too much to urge a buy.
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Yes, it really is this bad. No,

Microsoft's

(MSFT) - Get Report

not coming back -- at least, not

waaaay

back -- anytime soon. Where does this stop? I think, as I said to a friend a few weeks ago, Microsoft's going to find a "natural bottom" in these times of distress around 60. But please note I don't have much confidence in that number -- nor in any other forecast for MSFT's near-term future, given the current feeding frenzy by the

Justice Department

and the press.

A couple of years out, Microsoft in the mid-60s may look like the buy of the new century. But it's far too volatile right now, with far too many uncertainties and too much misinformation flying around, for me to suggest buying it now, possible bargain or no.

Two

wrong-o

press stories this morning, each going in a different direction, illustrate the problem.

The Washington Post

has a widely quoted story, including fragments of an interview with Microsoft CEO Steve Ballmer and the

Post

editorial board, which predicts very bad things for Microsoft shareholders if the company is split up.

Ballmer, after pointing out to the

Post

editors and reporters that while up-front costs in software development are high, the costs of duplicating and selling copies of the resulting work are very low, said:

I was an economics major. I learned enough of economics to know that if you have two guys selling the same thing and the marginal cost is zero, the price point on that is a well-known economic fact. And yet you have people say that it will increase shareholder value. I would vehemently dispute any notion there would be enhanced shareholder value on breakup.

Well, what

else

would you expect Stevie to say? He doesn't want Microsoft broken up. He wants to go on being CEO of a whole company. He doesn't want to give the Justice Department people, and U.S. District Judge Thomas Penfield Jackson, any "doesn't much matter either way" ammunition.

Of course

he thinks shareholders get screwed if the company is broken up. Duh.

And

The Wall Street Journal

led this morning with a front-page story saying ... well, pretty much the opposite. After positing that a breakup would primarily sever the Microsoft Office applications-package line from the rest of the company, and perhaps Internet Explorer as well, the

Journal

opines as follows on the consequences of a breakup:

A divestiture nonetheless could enrich shareholders. That's because the divested unit would likely be spun off to Microsoft's shareholders, giving them a stake in the future of the new company. In previous court-imposed divestitures in antitrust cases -- most recently in the breakup of the Bell system -- existing shareholders were richly rewarded.

As

TSC

readers know, I agree with the latter position. A breakup would not be in the best interests of Microsoft itself, nor of its workers, original equipment manufacturers, business customers, consumers, suppliers and the computer industry as a whole. But I think that by a year or so after it occurred, Microsoft shareholders would discover they'd made out like bandits in the deal.

But gosh, how confusing it must be for mere-mortal shareholders when these two business-news giants tear off in opposite directions.

Microsoft COO Bob Herbold, the 'soft executive offered up by the company most often of late -- and who has, in fairness, done a pretty good job -- was the Designated Talking Head today. Well-rehearsed as always -- I do not mean that as a slur -- Herbold beat the drum for Microsoft's innovation, dismissed its (former) underwriter

Goldman Sach's

downgrade of the stock today and argued for a long-term perspective for Microsoft shareholders.

Gosh, more surprises!

And Bob, hanging tough gets,

umm

, well, a bit tough when the stock has fallen by nearly half since the end of last year.

Dead money for months to come, as I've said here before. And maybe, for a lot of months.

I still think we'll see the

Supreme Court

take the appeal directly on certiorari from Judge Jackson's court and issue a ruling soon after it reconvenes from summer vacations, come October. Say, a ruling by Christmas.

But lots of bloodshed between now and then.

The action in

Exodus

(EXDS)

today illustrates perfectly the utter irrationality of this market. Down more than 20 today by midafternoon to about 86, from around 173 in late March, Exodus got hit because it issued its first-quarter earnings report this morning...and reported great results.

Consider:

  • Exodus today reported its first quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) profit, about $1.7 million.
  • Exodus had first-quarter sales of $134.1 million, up 346% from its year-ago quarterly sales of $30 million (on which it had lost $23 million-plus).
  • Exodus beat the First Call/Thompson Financial consensus earnings estimate of 26 cents a share by three cents.

Pretty good, huh? But not good enough. Knocked down 20 bucks by noon. Bah.

As I wrote here last week, even good earnings reports aren't enough to break the back of this irrationality.

Worst thing I can find to say about Exodus is that on a conventional basis, it lost $42.3 million in the first quarter (but remember that still beat the consensus estimate). And maybe the EBITDA number didn't include all its capital costs -- an issue for a company opening data centers as fast as in Exodus.

(Hmm: Am I sounding like Herb...?)

I'm not alone in admiring Exodus. Every analyst I could find who covers the stock -- more than 30 -- has a buy or strong buy recommendation on the stock.

And that was before the price tumbled today.

Just offhand, would you say Exodus is an even better buy this afternoon than it was this morning?

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Exodus, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.