Rick Sherlund, Nomura Securities’ software analyst, clearly thinks something’s up with Microsoft. He is a long-time, respected Microsoft watcher — first at Goldman Sachs and now at Nomura — so when he puts out a research note saying something’s new, even if he’s a little coy about what that might be, it’s worth noting. Sherlund also boosted his price target for Microsoft to $ 38 from $ 32 per share, while retaining his neutral rating on the stock. Hmmm.
This is fascinating because Sherlund, in his past life as software analyst at Goldman Sachs was “the” go-to analyst on Microsoft and he definitely knows a where some bodies are buried.
Here are some veiled semi-, sort-of predictions Sherlund put down in a research note released very early Tuesday morning:
1: Restive shareholders gain power: Sherlund thinks that shareholders are gaining steam in their demand for a greater voice in where the company is headed. There “may be a more receptive group of frustrated shareholders to leverage in an effort to drive greater realization of shareholder value at Microsoft,” he wrote.
2: Microsoft could exit search. It could hand search off to Facebook or Yahoo in return for traffic acquisition costs (TAC), Sherlund wrote. Microsoft Bing has gained some ground on Google but remains a distant second. The latest Comscore numbers showed Bing with a record 17.1 percent of U.S. searches in April, up from 16.9 percent in March. Google share fell to 66.5 percent from 67.1 perent percent for the same period. Whether that gain is worth what Microsoft poured into its no-doubt-pricey BingitOn campaign, is subject for another debate, however.
3: It could pay off disgruntled investors. Microsoft could double the dividend to yield about 6 percent by providing tax on currnt foreign source income.”
One thing is clear: Microsoft shareholders are one unhappy bunch. Looking at the post bubble-burst 13 years, the stock price is basically flat — it’s peaked at around $ 37 and has bounced beweeen that an d$ 20 for much of that time.
That’s led to some very loud calls for CEO Steve Ballmer to head for the door — something Ballmer shows no intention of doing. Dow Jones Newswire’s Al Smith helpfully published Ballmer’s Epitaph earlier this month, citing Windows 8 as a “bet the farm” gamble that didn’t pay off. That a contention — that Windows 8 is a failure — has been repeated in several news outlets. And it’s a conclusion that Microsoft’s top corp comms guy couldn’t let pass. In a blog post, Frank Shaw responded that Windows 8, which has sold 100 million copies, is hardly a failure. And linked to two positive reviews.
But back to Sherlund. He senses something different in the air when it comes to Microsoft’s corporate governance:
“We think there is a shift in the wind upcoming for Microsoft,with shareholders likely demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders.”
Now we’ll just have to wait and see.
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