Yahoo: "Microsoft can no longer afford to keep investing in the Xbox"

[Akvod]

kowenicki said:

Akvod said:

kowenicki said:

Akvod said:

kowenicki said:

Akvod said:

kowenicki said:

Akvod said:

Proclus said:
What kind of a failed article is this?

A: $67 billion in cash reserves say hi.

B: Despite massive R&D expenses during the last 3 Q's the division is still profiting.

C: The rest of the business collapsing? lol.

Kinda suprised anyone bothered to post this failure of an "article".

http://en.wikipedia.org/wiki/Cost_of_capital

http://en.wikipedia.org/wiki/Opportunity_cost

Just making a profit isn't enough. The money they make has to be greater than the money they (investors) could have made by investing in something else.

For investors... yeah thats right, I agree. 

Stock YTD:

Google v Nintendo v Sony v Dow v Microsoft.

 

 

So its pretty much in line with Google and the Dow.  Not much opportunity cost there given the correct diversification and volatility required in an effective portfolio.   This of course doesn't factor in the dividends payable.  

But you're looking at the entire company. We're looking specificly at the XBox division (although getting cost of capital for that would probably be difficult, since there's only 2 other comparable companies, a few more if you look at historical data [but that's probably irrelevant now]).

You cant look at the "xbox division", it doesnt exist and hasnt for some time. 

You talked of investors opportunity cost.  I presumed you meant investors buying stock.

If you were talking about MS as the investors in the Xbox then I'm sure they have a plan and the opportunity costs is fine, they have cash to burn so they are spedning to diversify and at the same time create an ecosystem. 

To quote an oft used phrase elsewhere....  "If they were thinking of closing a division  then the gaming division would be way down the list right now"

Do you know what cost of capital is?

I own a business that employs dozens of people and is in the financial sector.  What do you think?  and what do you do?

So then why were you looking at Microsoft as whole? Why were you looking at the Dow? Why are you saying that Microsoft should "burn" cash? And yes, I did mean investors buying stock when I was talking about opportunity cost.

My whole point is what is the theoretical cost of capital for XBox (or Microsoft's entertainment division if you want to broaden it)? Then the second question is, is that division making enough return, given it's risk? Who knows, but that goes back to my original point that making a profit in one year alone isn't enough, you need to do a more thorough analysis.

Which is impossible unless you are in MS and know their long term strategy / intentions. It's not public domain. We can only surmise.

You should be able to make an estimate of their cost of capital. At least a rough one.