Microsoft has become one of those “Someone else” companies. Someone else buys their products; someone else will always have to buy Microsoft technologies, etc. I have a general view that such companies in technology, which become part of the landscape, are among the best short-selling opportunities out there. They pull in value investors — ooooh, Microsoft is cheap! — and then, suddenly, the business begins falling apart, a process that accelerates until the value trap becomes obvious.
The trouble, as always, is finding a catalyst and timing the thing. I have been thinking a lot about it because I’ve been aching for some time to be short Microsoft. They are spending heavily, with meager results, meanwhile doing some poor acquisitions, with more ahead, and a general sense that growth, having slowed, will never come back. On other other hand, there is no sign that cash flow is tapering off, with the company still increasing monstrous numbers to the bottom line.
So, what might some collective signs & catalysts be?
- More poor acquisitions. I wasn’t a fan of the Skype deal, but a Yahoo deal would likely make things worse, so that rumored deal is one to watch.
- Any deceleration in Windows license sales.
- Inability to increase presence in mobile OS market in next year, which will be a crucial time.
- Inability to increase presence in cloud services market in next year.
- Significant improvements in Google Docs, which would further eat into Microsoft Office.
Other thoughts? I’m mostly trying to convince myself here, but I’m open to other ideas, including the idea that I have Microsoft dead wrong and better days are immediately ahead. I think that is a loony idea, but I also have a hard time believing that it is going to continue to flat line much longer.