Soured aQuantive bet costs Microsoft $6.2B
Microsoft is absorbing a $6.2 billion charge to reflect that one of the biggest acquisitions in its 37-year history turned out to be a dud. The accounting charge could saddle Microsoft with a loss for its latest fiscal quarter.
The Associated Press
SAN FRANCISCO — Microsoft is absorbing a $6.2 billion charge to reflect that one of the biggest deals in its 37-year history turned out to be a dud.
The noncash accounting charge announced Monday could saddle Microsoft with a loss for its fiscal fourth quarter that ended in June. Analysts polled by FactSet had predicted Microsoft would earn about $5.3 billion for the period.
Microsoft is to release its latest quarterly results July 19.
The world's largest software maker blamed the setback on the disappointing performance of aQuantive. Microsoft bought the Seattle holding company, which included digital-ad agency Razorfish, for $6.3 billion in 2007.
The deal was designed to mount a more serious challenge to one of Microsoft's biggest rivals, Internet search leader Google.
""It's disappointing, but it is not a shock at this point," said Brendan Barnicle, senior research analyst at Portland-based Pacific Crest Securities. "The industry has evolved beyond where aQuantive was when Microsoft bought it."
Microsoft does make money in online advertising, but has relied on digital-advertising partnerships.
The aQuantive deal ranked as the most expensive deal in Microsoft's history until it was eclipsed last year by the company's $8.5 billion purchase of Internet video-chat service Skype.
Investors can only hope Skype works out better than aQuantive.
Microsoft's $6.2 billion charge represents a sobering acknowledgment that aQuantive didn't bring in as much online-advertising revenue as envisioned, 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 $3.2 billion the same year Microsoft bought aQuantive.
Since then, Google's annual profit and advertising sales have more than doubled. Last year, Google earned $9.7 billion and collected $36.5 billion in ad revenue.
Microsoft's online division has sustained losses totaling nearly $9 billion since the company bought aQuantive. The unit generated $2.5 billion in revenue during fiscal 2011, just $54 million more than in fiscal 2007.
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.
Bing, a search engine Microsoft unveiled four years ago, has been getting more use, 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 barely dented Google's market share.
Google's share of the U.S. search advertising market has risen from 74 percent in 2010 to 78 percent this year, according to the research firm eMarketer. Yahoo's share of U.S. search ads has fallen from 10 percent in 2010 to less than 5 percent this year, while Microsoft's cut has remained unchanged at 7 percent.
BGP Financial Partners analyst Colin Gillis doesn't expect the hefty charge to dampen investors' enthusiasm as the anticipation builds for the upcoming release of Microsoft's latest version of the Windows operating system, which remains the company's biggest moneymaker.
The revisions in Windows 8, expected to hit the market this fall, are being counted on to help revive personal computer sales and establish Microsoft as a major player in the tablet computer market.
"AQuantive didn't work out, but everyone already pretty much knew that," Gillis said. "Now, they are just mopping up."
Microsoft has not reported a quarterly net loss in at least the past decade.
The amount of the writedown is no chump change, even for Microsoft. It reported a $5.11 billion profit in its third quarter, $5.9 billion profit in fourth quarter 2011, and $4.5 billion in fourth quarter 2010.
Microsoft shares shed 13 cents to $30.43 in Monday's extended trading. The stock has still posted a 17 percent gain so far this year.
Seattle Times technology reporter Janet I. Tu contributed to this report. Information from The New York Times is included.