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Saturday, April 29, 2006 - Page updated at 12:00 AM

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Microsoft's one-day stock plunge: enough to buy all of Costco

Seattle Times technology reporter

$32 billion

Approximate amount shaved off Microsoft's value when its stock price plunged 11.4 percent Friday

Microsoft's stock took its biggest one-day fall in more than five years Friday, shaving about $32 billion off the company's market value.

That's enough to buy Starbucks, with plenty left over to treat everyone in China to a tall cafe Americano. Or maybe buy Costco and Getty Images and get back about $2 billion in pocket change.

It's almost as much as the United States spends every three months in Iraq and Afghanistan.

The endowment of the Bill & Melinda Gates Foundation, the world's largest charity, is a few billion less.

Microsoft's stock closed at $24.15, down $3.10 a share, or 11.4 percent, after the Redmond software company indicated plans Thursday to invest more in its businesses — including a battle for the Internet with Google and Yahoo! — at the expense of higher short-term profits.

With more than 10.3 billion shares outstanding, Microsoft's market valuation went from about $281.6 billion Thursday to $249.6 billion at the end of Friday.

Microsoft Chairman Bill Gates, who had about 978 million shares in February, lost more than $3 billion on paper. But don't worry. He's still the richest person on the planet with a net worth of about $47 billion after Friday's loss, using estimates published by Forbes magazine last month.

Gates briefly acknowledged the stock market's reaction in a Seattle speech Friday.

"We announced yesterday that our [research and development spending] is going up even more," Gates said. "Some people are very enthused about those investments. Others were wondering why we think we need to invest so much. It really comes back to the optimism we have about these advances."

On Thursday, in its first forecast for the 2007 fiscal year, which begins July 1, Microsoft outlined financial projections that were well below Wall Street's expectations. The company said it expects to bring in $49.5 billion to $50.5 billion — a revenue boost of $5 billion to $6 billion over the current fiscal year — as it begins selling much-anticipated new versions of flagship products Windows and Office.

But Microsoft will spend more money, perhaps $2 billion over analyst expectations, on a dozen efforts within the company, including a high-stakes fight against Google and Yahoo! in the Internet-services arena and a campaign against Sony in the video-game console market.

That spending increase equals lower earnings per share. Microsoft said it expects per-share earnings to be $1.36 to $1.41 in 2007; the Wall Street consensus was $1.53.

"We should still see about 20 percent earnings per share (EPS) growth in calendar 2007, but the investment spending will be disruptive to EPS growth for the balance of calendar 2006 and leaves investors unresolved on what the benefits might be of this radical acceleration in spending," Goldman Sachs senior analyst Rick Sherlund wrote in a note to investors Friday morning.

At least five Wall Street analysts downgraded their ratings on Microsoft's stock; two others lowered their share-price targets.

For the fiscal third quarter, Microsoft reported operating income of $3.89 billion and profit of $2.98 billion on sales of $10.9 billion.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com. Seattle Times business reporters Tricia Duryee and Drew DeSilver contributed to this report.

Copyright © 2006 The Seattle Times Company

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