Microsoft takes $6.9bn dud deal hit
Microsoft is absorbing a $6.2bn (€4.9bn) charge to reflect that one of the biggest deals in its 37-year history fell flat.
The non-cash charge announced yesterday could saddle the world’s largest software maker with a loss for its fiscal fourth quarter ending in June. Analysts polled by FactSet had predicted Microsoft would earn about $5.3bn (€4.2bn) for the period. The company has not suffered a quarterly loss during the past 20 years, according to its website.
Microsoft, based in Redmond, Washington state, is due to release its latest quarterly results on July 19.
The firm blamed the setback on the disappointing performance of aQuantive, an online advertising service that Microsoft bought for $6.3bn in 2007 to mount a more serious challenge to one of its biggest rivals, internet search leader Google.
The aQuantive deal ranked as the most expensive in Microsoft’s history until it was eclipsed last year by the company’s $8.5 (€6.7) purchase of internet video chat service Skype.
Investors can only hope Skype works out better than aQuantive.
Microsoft’s $6.2bn charge represents a sobering acknowledgement that aQuantive did not bring in as much online advertising revenue as predicted, forcing management to write off most of the purchase price.
To add to Microsoft’s mortification, Google has been milking the acquisition of an aQuantive rival to widen its lead in the steadily growing online ad market. Google bought DoubleClick for $3.2bn (€2.5bn) about eight months after Microsoft took control of aQuantive.
Since then, Google’s annual profit and advertising sales have more than doubled. Last year Google earned $9.7bn (€7.7bn) and collected $36.5bn (€28.9bn) in advertising revenue.
Microsoft’s online division has sustained losses totalling nearly $9bn (€7.1bn) since the company bought aQuantive. The online division generated $2.5bn (€2bn) in revenue during Microsoft’s 2011 fiscal year, just $54m (€42.7m) more than in the 2007 period.
Although the online division has been faring slightly better in the past year, “the company’s expectations for future growth and profitability are lower than previous estimates”, Microsoft said yesterday.
Bing, a search engine that Microsoft unveiled four years ago, has been getting more usage, but most of its gains have come at the expense of a business partner, Yahoo. Microsoft’s search technology has been powering searches on Yahoo’s website for nearly two years, but that alliance has not dented Google’s market share.
Google’s share of the US search advertising market has risen from 74% in 2010 to 78% this year, according to the research firm eMarketer. Meanwhile, Yahoo’s share of US search advertising has fallen from 10% in 2010 to less than 5% this year while Microsoft’s cut has remained unchanged at 7%.
