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Microsoft eyes Web stock
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July 16, 1999: 3:31 p.m. ET
Tracking stock mulled for Net businesses to cash in on dot-com fever
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NEW YORK (CNNfn) - Microsoft Corp. will separate its Internet businesses and launch them as a separate tracking stock aimed at investors seeking a "dot-com" addition to their portfolios, according to a report published Friday.
The Seattle-based software publisher would use the stock of its Microsoft Network properties as a way of unlocking Internet-driven value and raising funds for future Web-oriented acquisitions, the Wall Street Journal reported.
The tracking stock would reflect the value of the company's underlying Internet operations.
Microsoft spokeswoman Caroline Boren said it is indeed an option available to the company.
"Tracking stocks are a well-known financial tool. Like many other companies, Microsoft's chief financial officer and treasury people have examined this several times."
However, Boren wouldn't confirm any such stock offering is in the works, saying the company doesn't comment on market rumors.
The stock could be warmly greeted on Wall Street, according to Ulric Weil, technology analyst at Friedman, Billings, Ramsey & Co.
"I think it's a great idea," said Weil. "Why not participate in some of the buzz surrounding the Internet stocks?"
Microsoft (MSFT) shares jumped after word of its possible tracking stock move hit Wall Street, gaining 3-1/8 to 97-1/2 in mid-morning trading.
Weil noted that Microsoft's Internet ventures have one thing going for them that many other Web wonders don't -- profits.
The businesses included in the new issue are likely to have revenue of $800 million to $1 billion. With Internet stocks commonly trading at multiples of 50 times or more -- and Microsoft's traditional business trading at 22 times revenue -- the Web issue could have a value of $50 billion.
Still, Microsoft's profitability may not be enough to differentiate it in the minds of investors, according to Rick Berry, director of equity research at J.P. Turner & Co.
"It probably won't be as popular as Microsoft stock," said Berry.
"The answer would depend on the general tone of the market toward Internet stocks," he added, noting that Microsoft shares would rise and fall much like the rest of the Internet shares.
Latecomer to Internet
Microsoft has been seen as somewhat of a latecomer to the Internet, according to Berry.
"They've been behind from the get-go," he said, citing as an example Microsoft's initial loss of Web browser market share to Netscape Communications Corp.
However, as the browser example shows, Microsoft is hard to count out. Eventually, it erased Netscape's dominance with it's own browser, Internet Explorer.
"With the type of war chest they have, it's easy to catch up," said Berry.
Indeed, Microsoft has pursued a strategy of using some of its surplus to buy large stakes in, if not buy outright, up and coming companies with promising technologies.
Gates, attending last week's media industry leader retreat in Sun Valley, Idaho, expressed envy at the ability Internet companies have to lower the cost of acquisitions through use of their stock.
The company's chief financial officer, Greg Maffei, said last month that Microsoft soon will begin separately itemizing revenue and expenses for the company's Internet operations, a move that analysts told the newspaper is a precursor to creating a tracking stock.
The Microsoft Network operates under the umbrella of its flagship Web site, MSN.com, and includes the Expedia travel site, Hotmail e-mail and the CarPoint auto-buying service. Microsoft may also include its WebTV Internet services in the tracking stock, the Journal said. 
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