Web 3.0 & MSN (Part 5)

Conclusion

Microsoft has been reorganizing and rebranding its online properties. The Company has rebranded MSN Messenger and Hotmail as Windows Live Messenger and Windows Live Hotmail. Microsoft is working on improving the underlying technology behind MSN and introducing new features but all this is yet to trickle down to the bottomline.

There are rumors of MSN launching a photo-sharing site. I think it is a good idea though it comes very late in the day. It recently acquired WebFives, a photo sharing technology company, which will boost its photo-sharing site. Acquiring something bigger like SmugMug or Shutterfly could also be in the pipeline, although, I am not entirely in agreement that the company should spray and pray in the Internet sector.

MSN Video has been doing very well and it has managed to displace Yahoo from the second spot and is drawing 5 million page views a day. MSN Money, MSN Health & Fitness and MSNBC are also doing very well. The Company should focus on these verticals and continue to execute on them, such that the results really stand out.

Microsoft posted solid results in 4Q07 and FY07 results and beat the street estimates. The Company’s Online Services Business grew 24% far above the 10%-12% estimated by the street. The Company expects to continue its robust growth in the coming quarters and expects FY08 revenues to grow by 15%-17%. Microsoft expects its Online Services Business to grow 33%-37% aided by the acquisition of aQuantive.

Microsoft is trading at a Forward P/E of around 18, which makes it the cheapest stock among its peers. With cash and cash equivalents of $21.5 billion Microsoft could splurge a great deal more in 2008. However, I would still maintain that the cash ought to first be spent to tee-up its business software / Software-As-A-Service coverage, and only then a few highly strategic online acquisitions would make sense. Amongst the bigger possibilities we have discussed are WebMD, Digg, Orbitz and Priceline. Seeking Alpha could be one of the smaller ones to augment MSN Money. But I would not go overboard with Internet acquisitions, if I were Ballmer.

And finally, those verticals in which Microsoft wants to be a serious player, must have a fully thought through Web 3.0 strategy, not just a spray presence.

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This segment is part 5 in the series : Web 3.0 & MSN
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