Yesterday I wrote a few lines about the recent Microsoft Yammer deal for $1.2 billion. My point was that what Microsoft is lacking focus which would result in a big destruction of company value – much more than the premium they paid for Yammer. And today, I wanted to show a chart with the stock performance of Microsoft, Apple and maybe Google to underline my point here. But strangely enough, the chart doesn’t really work out. Microsoft’s stock isn’t actually doing that bad. So either I am wrong with my assumption that Microsoft lacks focus and thus destroys company value step by step or investors see things radically differently.
Or maybe it is not even a contradiction? What’s the story when you ignore the superficial data and dig deep into the fundamentals?
Superficial data cries to be compared to superficial data from others. We all love to compare and we will do it again later this year at the Olympic Games in London. We simply love to put things into perspective and do it almost every time. We do it now with Jive Software, which sees its shares rise big time because of a comparison with Microsoft/Yammer. Jive Software is apparently in the same “space” so we compare. People and investors create “multiples” of superficial data like revenue, earnings, etc. to benchmark such ratios to similar companies and determine their value. That’s easy to do and they even look incredibly smart when they do that. It just has nothing to do with value.
Value is not superficial. Value is fundamental. The intrinsic value of a company is its continuous ability to solve one or more problems for which one or more markets require a solution. Focus is the ability of management to secure the company’s capabilities and resources to solve market problems. Lack of focus is the contrary. These are qualitative measures. They cannot be compared. But they are actually the source of long-lasting company value and still they are largely ignored in investors’ metrics.
Value and stock performance seem to me like apples and oranges now and I wonder why I ever wanted to show a chart to underline my previous point. I’ll never try to do that again.