Microsoft's just-announced $40 billion share buyback program is the latest in a series of moves in which the company is playing as nice as possible with Wall Street. Is the focus on shoring up the company's stock price a good thing or bad thing for Microsoft in the long run?
Microsoft today announced two moves designed to make Wall Street happy. It is raising its quarterly dividend to 28 cents per share, from 23 cents per share, and it will launch a new $40 billion stock buyback program, which replaces a similar $40 billion program that will end September 30.
Wall Street, as you might imagine, is pleased. Nomura Securities analyst Rick Sherlund said in a note that:
"We view this as a further indication that things are changing at Microsoft with respect to corporate governance that we believe could benefit shareholders over the next six to 12 months."
Taken on their own, these two moves don't necessarily mean much. But when you consider other recent actions, they may well reveal that Microsoft's moves are increasingly influenced by Wall Street, which may not necessarily be good for the company in the long run.
A Reuters article notes that this latest move appears to show Wall Street's increasing influence over the company's strategy, perhaps even leading to Ballmer's resignation:
For years, investors have called on Microsoft to return cash to shareholders rather than invest in peripheral projects and limit its focus to the vastly profitable Windows, Office and server products.Activist investor ValueAct Capital Management LP, whose recent lobbying of the company may have played a role in Ballmer's decision to retire earlier than he planned, is thought to favor such an approach.
If many people on Wall Street have their way, Microsoft will jettison big parts of the company in order to raise its stock price, and focus only on "core" products. Sherlund said back in May, for example, that Microsoft should sell both Bing and its Xbox business in order to boost the company's stock price and reduce costs.
There's nothing wrong with making moves to boost a stock's price, and a buyback plan certainly isn't a bad thing. But there's a danger when companies begin making short-term moves to boost stock prices while hurting the long-range health of a company. That's exactly what would happen if Microsoft sold off Bing and Xbox. Both products, particularly Bing, are central to the company's future. Selling them in order to raise stock prices would hurt the company in the long run.