[brutus1213]

Here is what I don't get. It is far easier for github's dev community to move to an alternate than Facebook users. Unless there is revenue to back it up, I don't understand the 7.5 Billion price tag. Heck .. Docker for 10 Billion might have been plausible. What are the barriers to another entrant?

This acquisition reminds me of the Minecraft acquisition. It did not make financial sense to me either. If Nadella keeps this up, he will eventually have issues with shareholders.

[scarface74]

This acquisition was essential free.

This time, really, the profits don’t matter: Microsoft is paying by issuing about 73 million new shares of stock, which cost it nothing. (It’s a tiny dilution, given the company’s 7.7 billion shares outstanding; what’s more, the share price rose on the news, which means that existing shareholders are happy to be diluted.)

https://slate.com/business/2018/06/microsoft-github-deal-why...

[kgwgk]

Using overvalued stock could make the acquisition “cheaper” than the sticker price (not really free). However, they’ve said they’ll do extraordinary buybacks to cancel the dilution in six months following the transaction. So unless the price of MSFT shares has a large correction during that period they are really going to spend over $7bn in cash.

[scarface74]

Just to add to your response and making assumptions about how you came up with the $7 billion....

The new stock is about 1% of the total number of shares outstanding. Thier total market cap is around. $785 billion. If they did a stock buyback to cancel the dilution it would be 7.85 billion.

My numbers are rounded - the new stock is actually less than 1% and the market cap as of right now is a little less than 785 billion so around 7 billion is more accurate.

[kgwgk]

I just rounded down (to give a conservative estimate) the $7.5bn I've seen everywhere. If they are giving them new MSFT shares worth $7.5bn, buying those shares back would cost around $7.5bn assuming the price doesn't move. Of course it may be significantly more or less that depending on the evolution of the stock price.

By the way, I said they will buy back stock in the next six months but it will be in the six months following the closing of the transaction (which is expected to take place by the end of the year). I've edited my previous comment slightly.

[endorphone]

That seems like spurious logic, especially given that Microsoft has spent many, many billions of their cash hoard on a stock buyback program (as does Apple, etc). By the broken logic of that Slate article, they're throwing money down a well foolishly because shares outstanding are "free".

Further, noting the current day price change is always the basis for countless nonsense articles. The shares haven't been diluted yet -- not until the deal closes later in the year -- and a temporary blip one way or another is close to meaningless.

[scarface74]

Remember that AOL was able to buy Time Warner with inflated stock. If you have inflated currency (I.e. stock), why not use it to buy some real assets?

[endorphone]

Whether a share price is inflated or not is always a point of contention -- if it's so obvious we can all buy our put options and retire on our riches. However Microsoft could literally have sold $7.5B worth of new shares and given that money to charity (which, in turn, would have been a nice tax benefit).

That money is very real, and there is nothing free about it.

[scarface74]

Whether a share price is inflated or not is always a point of contention -- if it's so obvious we can all buy our put options and retire on our riches.

"The market can stay irrational longer than you can stay solvent".

[oblio]

He tripled the stock price. I doubt shareholders are sad :)

[endorphone]

Brutus said eventually, and that's an entirely reasonable statement. Microsoft has burned many, many billions on foolish ventures to try to regain namespace, while at the same time the entirety of their revenue is still based on the coasting remains of the empire they built a decade ago. Microsoft's revenue has stagnated, despite endlessly acquiring and adding new verticals to the stack.

To put it another way, simply doing the SAP and squeezing Windows + Office would have netted a much more profitable business than everything Microsoft has been doing.

[oblio]

Azure is a new business.

[endorphone]

Azure has negligible profit (if any), and it's profoundly telling that Microsoft always hogties Azure numbers with Windows Server sales. The press remarkably buys this hook line and sinker, repeats this Intelligent Cloud prattle as if it's true.

[As an aside, Microsoft's continuing tendency to group success with losers, shuffling them around to opaque the numbers, is something that sees far less skepticism than it should. We saw this with Windows Mobile cum Phone where they tried to put on the face of success for as long as possible]

Microsoft was traditionally a very high profit margin company, and their software offerings still are. Azure might sound good to make them seem like they're still with it, but it is deadly long term (massive capital expenses, fast depreciation, and very low margins).