In this blog, we will look at the balance sheets of Microsoft, Google and Yahoo! to see how these companies are doing in the downturn.
In the last quarter of 2008, the market was in a freefall causing dislocations in the search, advertising businesses. Thus Q1 of 2009 provides a good picture of how the companies are doing with respect to search and advertising businesses. Let us take a look.
Google had total income of 1.4 billion dollars after income taxes. Google spent 262 million dollars to purchase plant, property and equipment. Google doesnt pay a dividend - this makes the overall cash available for other activities 1.138 billion dollars.
Yahoo!'s income from operations fell to 117 million dollars in Q1 of 2009 from about 530 million dollars in Q1 of 2008. Yahoo! also spent about 70 million on capex. Thus the cash available for other activities is about 47 million dollars.
Microsoft on the other hand relies exclusively on its other businesses to fund the search operations. Let us take a look at Microsoft's online services business.
In the January - March quarter, the online services business had revenues of 721 million dollars and a loss of 575 million dollars. For the first nine months of the year, Microsoft had revenues of 2.4 billion dollars and a loss of 1.5 billion dollars.
Let us see how Microsoft's other businesses are doing to see if Microsoft can keep up these losses without impairing its ability to compete in other areas.
In the Jan-March quarter, Microsoft had 2.977 billion in net income. Microsoft paid 1.155 billion dollars in dividends in the quarter. In addition, Microsoft had capital expenditures for plant, property and equipment of 632 million dollars. Overall cash that is available after these expenses is 1.19 billion dollars.
Microsoft took a large hit in the windows client operating profits with profits dropping by more than a billion dollars because of the rise of netbooks.
Thus looking at the cash flows and the cash on the balance sheet, it doesnt look as though Microsoft will be able to unseat the incumbent Google in the search market unless Google makes mistakes and hands over the reigns to Microsoft.
The Yahoo! market cap is about 22 billion dollars. It is unlikely that any buyout can happen for less than 30-35 billion dollars. Also, the parting of Yahoo! search to Microsoft is likely to cost Microsoft good amounts of money.