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THE DAY AHEAD: Microsoft has new management, same old caution

Microsoft Corp. (Nasdaq: MSFT) has a new CEO in Steve Ballmer, a new financial chief and new products that could transform the company. But that old Microsoft caution still remains.

New CFO John Connors picked up where Greg Maffei left off and gave investors a crafty dose of double-talk -- be optimistic, but don't raise estimates. The goal: Keep expectations low enough so Microsoft can always impress Wall Street.



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The caution was evident after Microsoft handily beat second quarter estimates with earnings of 44 cents including charges and 47 cents without one-time items. Revenue growth was solid as sales came in at $6.11 billion.

Given the Year 2000 spending slowdown at the end of 1999, Microsoft fared well. Microsoft, however, needed investment gains of 4 cents a share to wow Wall Street this time. Microsoft took some profits on its $19.8 billion investment portfolio.

Connors, in true Microsoft form, made sure investors didn't get ahead of themselves. He told analysts not to increase third quarter estimates, which are currently 41 cents a share. Connors also told analysts to keep fourth quarter estimates steady. Revenue growth year-over-year would be up 25 percent in the third quarter compared to last year. The bottom line growth would be hampered because the company is spending heavily on new products, said Connors.

The new financial chief said he was "enthused about Windows 2000," but stressed caution because he didn't want expectations "to get too far ahead on revenue related to Windows 2000."

Connors said the revenue ramp and upgrade cycle will be slower because customers have to deploy the new operating system and that takes time. In addition, Windows 2000 won't launch until Feb. 17, midway through the current quarter.

Microsoft also pointed out that it saw a slowdown in corporate PC spending and Windows revenue. Corporations cut back on spending due to Year 2000 lockdowns.

But when you factor out the caution, there are a lot of reasons to be bullish on Microsoft. The company's consumer group is thriving (of course the company didn't get specific), Office continues to sell well, and applications sales are gaining traction.

Of course, there are a lot of little things that could add up to problems. Steve Ballmer took over for Bill Gates as CEO. Connors is new and the company is entering a new product cycle. And let's not forget that pesky antitrust trial and competition from Red Hat (Nasdaq: RHAT) and the Linux crowd, Oracle (Nasdaq: ORCL), America Online (NYSE: AOL) and Sun Microsystems (Nasdaq: SUNW).

Overall, however, you'd be well advised to not take Microsoft's caution too seriously. The company has always been cautious and plays Wall Street's expectations game better than anyone.

Go2Net delivers; A look at DoubleClick

Tech investors have a lot to cheer about after the latest batch of earnings, but here are two tidbits that stand above the muck.

Go2Net (Nasdaq: GNET) continues to impress. The company more than doubled consensus estimates with fourth quarter earnings of 16 cents a share. First Call was expecting earnings of 7 cents a share.

Revenue spiked to $14 million in the quarter, up 439 percent from a year ago.

Go2Net has met all of its goals. The company is in the top 10 in Media Metrix reach, has repeatedly posted profits and is well positioned in the broadband world via a partnership with Paul Allen.

But as we've pointed out before, a lot of the big brokerages -- Robertson Stephens, Hambrecht & Quist, Goldman Sachs, Morgan Stanley, Salomon Smith Barney, Bear Stearns to name a few -- don't cover the company yet.

Why? Go2Net didn't have a flashy IPO, has tons of cash and therefore didn't need underwriters, and their coverage. It's a racket -- good thing that a lot of investors have discovered Go2Net without analysts cheerleading.

DoubleClick (Nasdaq: DCLK) delivered solid results and reported fourth quarter net revenue of $93.7 million. The company also trimmed its losses to 3 cents a share. With charges, DoubleClick lost 38 cents a share.

DoubleClick is currently integrating five acquisitions, including NetGravity, Abacus Direct, Opt-in Email.com and two joint ventures abroad.

Despite DoubleClick's obvious leadership, some analysts contend the company is undervalued relative to other Net leaders.

Citing DoubleClick's leadership and momentum, C.E. Unterberg Towbin argues DoubleClick shares should be valued higher. "As the emerging marquee name in the Internet advertising space, DoubleClick will command an Internet industry leader valuation," said Tara Long, in a recent report. "As DoubleClick executes on its strategy, its shares should merit the premium valuation level of other Internet sector leaders: Amazon (Nasdaq: AMZN), Yahoo (Nasdaq: YHOO), eBay (Nasdaq: EBAY), CNet (Nasdaq: CNET) and AOL (NYSE: AOL)."