Microsoft writes off $6.2bn after acquisition proves worthless
MICROSOFT ADMITTED its largest acquisition in the internet sector was effectively worthless as it announced a $6.2 billion charge to write down the value of an online advertising agency it bought five years ago.
Microsoft’s purchase of aQuantive in 2007 was expected to boost online advertising revenue and counter rival Google’s purchase of advert firm DoubleClick.
However, the software company said the acquisition did not accelerate growth to the degree anticipated, contributing to the writedown.
Microsoft bought aQuantive for $6.3 billion in cash in an attempt to catch rival Google in the race for revenues from search-related display advertising. It was Microsoft’s biggest acquisition at the time, exceeded only by its $8.5 billion purchase of Skype last year.
But it never proved a success and aQuantive’s top executives soon left Microsoft.
As a result of its annual assessment of goodwill – the amount paid for a company above its net assets – Microsoft said it would take a non-cash charge of $6.2 billion, indicating the aQuantive acquisition is now worthless.
The charge will likely wipe out any profit for the company’s fiscal fourth quarter. Wall Street was expecting Microsoft to report fiscal fourth-quarter net profit of about $5.25 billion, or 62 cents a share, on July 19th.
In addition to the writedown, Microsoft said its expectations for growth at its online services unit – which includes the Bing search engine and MSN portal – are “lower than previous estimates”.
Microsoft’s online services division is the biggest drag on earnings, losing about $500 million a quarter as the company invests heavily in Bing in an attempt to catch market-leader Google. The unit has lost more than $5 billion in the last three years alone.
Before rolling out Bing in June 2009, Microsoft’s Windows search engine had 8 per cent of the US internet search market, compared with Yahoo’s 20 per cent and Google’s 65 per cent.
In the three years since, Bing has almost doubled its share to 15 per cent, mostly at the expense of Yahoo whose share is down to 13 per cent. Google now has almost 67 per cent, according to research firm Comscore. Yahoo’s internet searches are powered by Microsoft’s Bing under a 10-year agreement initially struck in 2009. Microsoft hands back to Yahoo 88 per cent of revenue generated from search ads on Yahoo sites.
$6.3bn:what Microsoft paid for aQuantive in 2007