THE DAY AHEAD: Microsoft's Internet holdings remain a mystery

In a marathon conference call, Microsoft Corp. (Nasdaq: MSFT) officials said the days of torrid growth may be over, gave an accounting lesson and covered the intricate details of every product Microsoft sells. But investors will be hard pressed to find any new information about Microsoft's Internet properties.

Microsoft is a straightforward company when it comes to investor relations, but its vast Internet holdings remain a mystery. The fourth quarter results didn't shed any light on the Net unit.

Although revenue growth for the company would slow to the "high teens" in fiscal 2000, revenue growth from Microsoft's MSN and other Internet properties would be up about 75 percent in the first quarter alone.

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But in the current Microsoft mix Internet properties are lumped into a "content, commerce and other" category. The good news is that MSN et al. is almost becoming material, up 26 percent from last year to $593 million.

We do know Microsoft may -- or may not -- be considering a tracking stock for its Internet properties. Microsoft financial chief Greg Maffei said no tracking stock announcement was imminent, but he added that the company is considering different structures for the Net unit.

There's no rush, according to Maffei. Microsoft's stock currency is doing just fine thank you and the company isn't exactly hurting for cash.

Microsoft's stock -- and the options that go with it -- may not perform well forever though. Maffei was much more cautious than usual and investors will have a tough time figuring out what to believe. Microsoft has been cautious before, but if officials are right the company's 1999 growth rate of 29 percent could be halved in fiscal 2000.

The reasons for Microsoft's caution -- Year 2000 problems (no evidence yet), slowing PC sales (no evidence yet) and a slowdown in Europe and Asia (a little evidence) -- will give investors plenty to chew on.

And those factoids bring us back to the Internet properties. If growth is slowing why not detail the part of the company that can post exponential growth? Microsoft's Internet properties are in the top three networks in terms of Media Metrix reach and according to Maffei are doing a better job of monetizing users. We can also guess that Microsoft sees itself as more of a commerce player because it dumped the content heavy Sidewalk on Ticketmaster Online-Citysearch.

No one knows what the sale of Sidewalk portends for Microsoft's other properties.

All we officially know, however, is that Hotmail and Microsoft's vertical properties such as Expedia are doing well at least in terms of traffic. Microsoft is also tinkering with offering MSN dial-up service as "free PC" deals take hold. Advertising revenue rose "substantially" and subscriptions rose moderately.

Boy some of those page view counts and e-commerce vs. advertising revenue breakdowns would be nice. Instead MSN gets a paragraph in the earnings statement and Microsoft's broadband investments get a paragraph.

But that's it for details. We doubt Microsoft is deliberately vague about its Internet properties. In comparison to Windows, Office, SQL and Back Office sales, Microsoft's Internet sales are chump change. That's why it would make sense to spin out the Internet properties and give investors the details on what could be the next growth engine of Microsoft.

Inquiring minds want to know.

Been there, done that

Will the market actually believe Microsoft's latest dose of caution? Probably not.

This reader comment sums it all up.

"Wouldn't it be quicker just to reprint the same story each quarter? There is certainly nothing new here, not from exceeding the carefully managed expectation nor from including the obligatory "but a slowdown is coming," wrote one reader in response to the Microsoft earnings. "I should print paragraphs from the last five year's worth of quarters and see if anyone, anywhere, can tell one from the other."

Point well taken. The real bottom line might be that Microsoft's caution just helps the company with its stock buyback plan.