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Microsoft's share prices drop

BBC news, 7^th May, 2006

Microsoft’s share price dropped 16.3% even after the firm had announced plans to invest a further $2.5b into its internet business. It wants to compete with giants, Google and Yahoo!.

Greene, J. Business Week, 15^th May, 2006.

There are two types of share - Growth and value

Growth – company that is investing money in lots of growth. Does not give back dividends

Value – when firm is more stable and not growing as much, so giving money back to share holders.

MS has decided to invest $2b into internet products, meaning that it is doing “growth” company things, after investors were just getting used to it being a value firm.

It could be thought that share prices would not go down, given that Windows, even though it is not as successful as it was in the 1990s, still earns the company $1b in cash every month. It is also doing well with its computer games and server software.

However, the market is confused people are uncertain and share price goes down. In addition, people who buy value shares are different from the people who buy growth shares - there is generally more risk and return in the latter.