Microsoft takes $6.2bn charge over aQuantive

 

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By Reuters

Posted on 3 Jul 2012 at 09:24

Microsoft admitted its largest web acquisition was effectively worthless and wiped out any profit for the last quarter, as it announced a $6.2 billion charge to write down the value of aQuantive.

The announcement came as a surprise, but did not shock investors, who had largely forgotten Microsoft's purchase of the online advertising firm in 2007, which was initially expected to boost Microsoft's online advertising revenue and counter rival Google's purchase of digital ad firm DoubleClick.

Microsoft said in a statement that "the acquisition did not accelerate growth to the degree anticipated, contributing to the write-down."

The acquisition did not accelerate growth to the degree anticipated, contributing to the write-down

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 purchase of Skype for $8.5 billion 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, with results due 19 July.

Web woes

In addition to the write-down, Microsoft said its expectations for future growth and profitability 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 its earnings, currently 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. Even though its market share has been rising, Bing has not reached critical mass required to make the product profitable.

Before rolling out Bing in June 2009, Microsoft's Windows search engine had 8% of the US search market, compared with Yahoo's 20% and Google's 65%.

In the three years since then, Bing has almost doubled its market share to 15%, but that has been mostly at the expense of Yahoo, which has had its share whittled down to 13%. Google now has almost 67%, according to research firm Comscore.

Yahoo's internet searches are powered by Microsoft's Bing under a ten-year agreement initially struck in 2009. Microsoft hands back to Yahoo 88% of revenue generated from search ads on Yahoo sites. That deal has not met the ambitious targets set by either company.