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Huge news! Let's see what happens to the stock today. It edged up a little at the end of the day, suggesting that perhaps news was getting out. It's up 8% in

Huge news! Let's see what happens to the stock today. It edged up a little at the end of the day, suggesting that perhaps news was getting out. It's up 8% in premarket trading. [1] One interesting thing to note from that chart is their Beta (a measure of link to market volatility) is less than 1, which is very low for a high tech stock. It basically means that the market views them as less volatile to market conditions than an index fund. Or put another way, more like a utility than a high tech firm. What does this mean for Microsoft? I think an awful lot will depend on his replacement. I don't think they can get Gates to do another round. Who has the breadth of skills to manage it all? Seems like a complex enough beast that finding an appropriate outsider would be difficult too. Going to another source [2] I see: “As a member of the succession planning committee, I’ll work closely with the other members of the board to identify a great new CEO,” said Gates. “We’re fortunate to have Steve in his role until the new CEO assumes these duties.” This suggests that he could be gone much sooner if the search goes well. These things don't happen overnight, but it could be by the end of the year or even sooner. [1] http://finance.yahoo.com/q;_ylt=AsQ2vnc2OVs8WNqk.WdDwM.iuYdG;_ylu=X3oDMTBwdm1qNzVjBHNlYwNVSCAzIERlc2t0b3AgU2VhcmNoIDI-;_ylg=X3oDMTBucmRhZWhqBGxhbmcDZW4tVVMEcHQDcG1oBHRlc3QD;_ylv=3?uhb=uhb2&fr=yfinanceheader_test2&type=2button&s=msft http://finance.yahoo.com/q;_ylt=AsQ2vnc2OVs8WNqk.WdDwM.iuYdG... [2] http://blogs.wsj.com/moneybeat/2013/08/23/microsoft-ceo-steve-ballmer-to-retire-in-12-months/ http://blogs.wsj.com/moneybeat/2013/08/23/microsoft-ceo-stev...

deleted 13y ago
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lee 13y ago
I'm not sure your description of Beta is accurate. Correctly if I'm wrong, but Beta is a measure of volatility in correlation with the broader market, not a measure of volatility in of itself. There are plenty of stocks that have beta < 1 that are much more volatile than the indexes. Having a low beta simply means its price isn't as correlated with the overall market. An example, Netflix has a beta < 1 but is extremely volatile.
- sz4kerto 13y ago
  Correct. However, beta<1 still means that the company's outlook and success does not depend that much on the state of the economy, for example.
- mathattack 13y ago
  You are correct in your definition. I thought that's how I explained it. Beta is volatility relative to the entire market. That's why I said "less volatile to market conditions than an index fund" Basically if the market has a big day, it will move up less than the whole market. Similarly on a down day. I think for both Netflix and Microsoft it's because they have strong brands and recurring revenue streams. They are also less dependent on external funding, so whether the market goes up or down has little impact on their P&L. The converse, which you pointed out, is that they are highly impacted by non-market risks, which is very big, especially in the case of Netflix. There is a lot of discounting of future cashflows, so if something small happens (like splitting off the CDs business) then it creates a lot of volatility. I think we're on the same page, no? Should I edit the original to be more precise?
  - bornhuetter 13y ago
    Your definition and use of the term are correct.
- n00b101 13y ago
  If S is the stock return and M is the market return, then Beta = cor(S,M)*vol(S)/vol(M) Where cor(A,B) is correlation between A and B, and vol(X) is volatility of X (i.e. standard deviation).
twoodfin 13y ago
Seems like a complex enough beast that finding an appropriate outsider would be difficult too. I think they said the same thing right before Lou Gerstner went to IBM, and that turned out very well, at least from an investor's point of view. Obviously IBM was in a lot more trouble business-wise then than Microsoft is today, but I expect a similar degree of transformation out of a successful new CEO.
- mathattack 13y ago
  Yes - Lou Gerstner was a very rare bird as a CEO. He was a consultant who became a great executive, then a CEO, then led a transformation the likes of which he'd advised on as a consultant. What's needed is of that order of magnitude. How do you find folks like that?
  - rrrrtttt 13y ago
    As a side note, I really have a hard time figuring out what was it that Gerstner did at IBM. When he started, IBM was the mainframe company. What is it doing today? They say it's services, but what are services? When I did an internship there, everyone I asked just shrugged their shoulders.
    - weland 13y ago
      IIRC, IBM are still reasonably big on R&D, aren't they? Also, investor-wise people were happy with what he did. A thriving company doing i-have-no-idea-what is a better investment than a sinking mainframe company.
      - seanmcdirmid 13y ago
        IBM is big on R&D in India...and squeezing money out of customers for projects they can't build anymore. I work for Microsoft, I don't want to work for IBM.
        johnward 13y ago
chollida1 13y ago
> One interesting thing to note from that chart is their Beta (a measure of link to market volatility) is less than 1, which is very low for a high tech stock. Not really, Looking at my Bloomberg terminal shows that AAPL US Equity has a beta of .944, YHOO US Equity has a beta of .748 and GOGO US Equity has a beta of .894.
- mathattack 13y ago
  Interesting. I see IBM is less than 1 too. Facebook has a 3.29, LinkedIn is 1.81, Accenture is 1.4 and SAP is 1.5. Do you think this is based on revenue models? Size? The amount of cash on hand? Brand strength? Likelihood of needing to go to the public markets for money?
  - zeckalpha 13y ago
    It's drawn from a normal distribution.
  - bernardom 13y ago
    I would hesitate to try to put a narrative-based explanation to it. As you pointed out, Beta is the correlation of a security's price history to the market's movement. Approximately half of any group of equities will have a correlation below 1 against the group's weighted average performance. If the group is large enough, its movement will closely mirror the market, so for a large enough group of equities (chosen randomly) about half will have correlation below 1, and half above. It merely means that Microsoft is reasonably closely tied to the market's movement, though slightly below. You compared it against its sector, technology. The tech sector has a higher average beta than the utilites sector. That's just the nature of the sector. Where it gets interesting is something like FB at 3.29. That's really high. But its price history is also short, having IPOd so recently... perhaps over time it will stabilize at a lower number.
kabdib 13y ago
Thank God. (Speaking as an ex-Microsoftie). Hopefully MS will lose the "we need to put Windows on everything, including embedded systems" attitude. Windows is a horrible bloated mess barely capable of successfully running on a tablet PC, much less smaller things. (And if you've ever had to /build/ Windows . . . OMG. OMFG). There are core bits of Windows that are great; the I/O system is incredibly well done. Then then are core pieces of Windows which are incredibly shitty -- in fact, there are registry entries that /nobody knows what they do/. No one has had the gumption to clean that stuff up. But until they do, folks like Apple (who seem to have a good handle on their technology /and/ consumer design) will continue to be fierce competitors. If they pick the wrong CEO, this could go south pretty quickly. They're going to need someone tough, who has a good horse sense about consumers and can't be snowed by engineering management trying to cover up mistakes. BillG isn't coming back, but they need someone like him.
- 1337biz 13y ago
  But what could be the future of MS look like a strategic perspective? I am pondering a bit about that. They are somewhat squeezed in between closed system and open source. How can they position themselves for a solid path for the future in that middle-ground.
  - sixothree 13y ago
    "... its transformation to a devices and services ..." doesn't seem to mention software.
    - mathattack 13y ago
      I was thinking similar. Balmer's goodbye note mentions an organization based on functions and engineering. But not customers. :-)
  - rdl 13y ago
    A non-crappy enterprise mobile option alone (basically Blackberry 2013) would be a $100b business. Neither Android nor iOS is that out of the box, and the bolt-on ecosystem of crap doesn't turn either into as good a system as RIM was in its heyday. Look what phone DIRNSA uses today: a Blackberry. I'd sell non-core assets (Xbox, Bing, hotmail, consumer stuff in general, etc.), and focus on the core OS/mobile/Azure/Office/MSDN systems.
smoorman1024 13y ago
It's a strong assertion to say that it edged up based on news possibly getting out. After the NASDAQ halt yesterday the NASDAQ composite as a whole edged up. MSFT's movement looks correlated to this broader move. https://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC&ei=mGoXUomMCYLk0gGnmwE https://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC&ei=mGoX...
- mathattack 13y ago
  Good point. I was thinking it was rumors getting out because of the gradual nature of the move, but I think that you're right. Traders were slow to put orders back into the market, which created a gradual drift up, rather than an instant reset in the market when it re-opened.
  - smoorman1024 13y ago
    That said, I am one to believe that news always leaks at least to small indirect parties. It's not in those parties interest to spread the news or bet big enough to attract attention. It happens though.
  - smoorman1024 13y ago
    It here is some speculation about said inside information. I emphasize speculation. http://www.zerohedge.com/news/2013-08-23/call-it-ballmer-game-who-knew-what-when http://www.zerohedge.com/news/2013-08-23/call-it-ballmer-gam...
- jvm 13y ago
  Nasdaq is up only .5%, MSFT is up 7.35%. Given that MSFT has high weight on the Nasdaq, a 7% move for them probably accounts for a large proportion of that .5% overall move.
gavinlynch 13y ago
Who really cares what this does to the stock market today? It's about the long-term success of the company and the products that will lead it into the next generation (or not), and not the short-term fluctuation of stock.

deleted 13y ago

[deleted]

lee 13y ago

I'm not sure your description of Beta is accurate. Correctly if I'm wrong, but Beta is a measure of volatility in correlation with the broader market, not a measure of volatility in of itself. There are plenty of stocks that have beta < 1 that are much more volatile than the indexes. Having a low beta simply means its price isn't as correlated with the overall market. An example, Netflix has a beta < 1 but is extremely volatile.

sz4kerto 13y ago
Correct. However, beta<1 still means that the company's outlook and success does not depend that much on the state of the economy, for example.
mathattack 13y ago
You are correct in your definition. I thought that's how I explained it. Beta is volatility relative to the entire market. That's why I said "less volatile to market conditions than an index fund" Basically if the market has a big day, it will move up less than the whole market. Similarly on a down day. I think for both Netflix and Microsoft it's because they have strong brands and recurring revenue streams. They are also less dependent on external funding, so whether the market goes up or down has little impact on their P&L. The converse, which you pointed out, is that they are highly impacted by non-market risks, which is very big, especially in the case of Netflix. There is a lot of discounting of future cashflows, so if something small happens (like splitting off the CDs business) then it creates a lot of volatility. I think we're on the same page, no? Should I edit the original to be more precise?
- bornhuetter 13y ago
  Your definition and use of the term are correct.
n00b101 13y ago
If S is the stock return and M is the market return, then Beta = cor(S,M)*vol(S)/vol(M) Where cor(A,B) is correlation between A and B, and vol(X) is volatility of X (i.e. standard deviation).

twoodfin 13y ago

Seems like a complex enough beast that finding an appropriate outsider would be difficult too. I think they said the same thing right before Lou Gerstner went to IBM, and that turned out very well, at least from an investor's point of view. Obviously IBM was in a lot more trouble business-wise then than Microsoft is today, but I expect a similar degree of transformation out of a successful new CEO.

mathattack 13y ago
Yes - Lou Gerstner was a very rare bird as a CEO. He was a consultant who became a great executive, then a CEO, then led a transformation the likes of which he'd advised on as a consultant. What's needed is of that order of magnitude. How do you find folks like that?
- rrrrtttt 13y ago
  As a side note, I really have a hard time figuring out what was it that Gerstner did at IBM. When he started, IBM was the mainframe company. What is it doing today? They say it's services, but what are services? When I did an internship there, everyone I asked just shrugged their shoulders.
  - weland 13y ago
    IIRC, IBM are still reasonably big on R&D, aren't they? Also, investor-wise people were happy with what he did. A thriving company doing i-have-no-idea-what is a better investment than a sinking mainframe company.
    - seanmcdirmid 13y ago
      IBM is big on R&D in India...and squeezing money out of customers for projects they can't build anymore. I work for Microsoft, I don't want to work for IBM.
      - johnward 13y ago

chollida1 13y ago

> One interesting thing to note from that chart is their Beta (a measure of link to market volatility) is less than 1, which is very low for a high tech stock. Not really, Looking at my Bloomberg terminal shows that AAPL US Equity has a beta of .944, YHOO US Equity has a beta of .748 and GOGO US Equity has a beta of .894.

mathattack 13y ago
Interesting. I see IBM is less than 1 too. Facebook has a 3.29, LinkedIn is 1.81, Accenture is 1.4 and SAP is 1.5. Do you think this is based on revenue models? Size? The amount of cash on hand? Brand strength? Likelihood of needing to go to the public markets for money?
- zeckalpha 13y ago
  It's drawn from a normal distribution.
- bernardom 13y ago
  I would hesitate to try to put a narrative-based explanation to it. As you pointed out, Beta is the correlation of a security's price history to the market's movement. Approximately half of any group of equities will have a correlation below 1 against the group's weighted average performance. If the group is large enough, its movement will closely mirror the market, so for a large enough group of equities (chosen randomly) about half will have correlation below 1, and half above. It merely means that Microsoft is reasonably closely tied to the market's movement, though slightly below. You compared it against its sector, technology. The tech sector has a higher average beta than the utilites sector. That's just the nature of the sector. Where it gets interesting is something like FB at 3.29. That's really high. But its price history is also short, having IPOd so recently... perhaps over time it will stabilize at a lower number.

kabdib 13y ago

Thank God. (Speaking as an ex-Microsoftie). Hopefully MS will lose the "we need to put Windows on everything, including embedded systems" attitude. Windows is a horrible bloated mess barely capable of successfully running on a tablet PC, much less smaller things. (And if you've ever had to /build/ Windows . . . OMG. OMFG). There are core bits of Windows that are great; the I/O system is incredibly well done. Then then are core pieces of Windows which are incredibly shitty -- in fact, there are registry entries that /nobody knows what they do/. No one has had the gumption to clean that stuff up. But until they do, folks like Apple (who seem to have a good handle on their technology /and/ consumer design) will continue to be fierce competitors. If they pick the wrong CEO, this could go south pretty quickly. They're going to need someone tough, who has a good horse sense about consumers and can't be snowed by engineering management trying to cover up mistakes. BillG isn't coming back, but they need someone like him.

1337biz 13y ago
But what could be the future of MS look like a strategic perspective? I am pondering a bit about that. They are somewhat squeezed in between closed system and open source. How can they position themselves for a solid path for the future in that middle-ground.
- sixothree 13y ago
  "... its transformation to a devices and services ..." doesn't seem to mention software.
  - mathattack 13y ago
    I was thinking similar. Balmer's goodbye note mentions an organization based on functions and engineering. But not customers. :-)
- rdl 13y ago
  A non-crappy enterprise mobile option alone (basically Blackberry 2013) would be a $100b business. Neither Android nor iOS is that out of the box, and the bolt-on ecosystem of crap doesn't turn either into as good a system as RIM was in its heyday. Look what phone DIRNSA uses today: a Blackberry. I'd sell non-core assets (Xbox, Bing, hotmail, consumer stuff in general, etc.), and focus on the core OS/mobile/Azure/Office/MSDN systems.

smoorman1024 13y ago

It's a strong assertion to say that it edged up based on news possibly getting out. After the NASDAQ halt yesterday the NASDAQ composite as a whole edged up. MSFT's movement looks correlated to this broader move. https://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC&ei=mGoXUomMCYLk0gGnmwE https://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC&ei=mGoX...

mathattack 13y ago
Good point. I was thinking it was rumors getting out because of the gradual nature of the move, but I think that you're right. Traders were slow to put orders back into the market, which created a gradual drift up, rather than an instant reset in the market when it re-opened.
- smoorman1024 13y ago
  That said, I am one to believe that news always leaks at least to small indirect parties. It's not in those parties interest to spread the news or bet big enough to attract attention. It happens though.
- smoorman1024 13y ago
  It here is some speculation about said inside information. I emphasize speculation. http://www.zerohedge.com/news/2013-08-23/call-it-ballmer-game-who-knew-what-when http://www.zerohedge.com/news/2013-08-23/call-it-ballmer-gam...
jvm 13y ago
Nasdaq is up only .5%, MSFT is up 7.35%. Given that MSFT has high weight on the Nasdaq, a 7% move for them probably accounts for a large proportion of that .5% overall move.

gavinlynch 13y ago

Who really cares what this does to the stock market today? It's about the long-term success of the company and the products that will lead it into the next generation (or not), and not the short-term fluctuation of stock.