MSFT Expected To Invest Another $2 Billion On Web Services, Xbox

Microsoft’s admission that it will invest more cash — an estimated $2 billion — in its next fiscal year starting July 1 drove the company’s stock price down by more than 11 percent Friday and helped set off a wave of downgrades. But Microsoft management thinks much can be gained by investing more on web services, including its new ad network, and Xbox. Analysts are trying to sort it out:
Israel Hernandez, Lehman Bros. (via Reuters): “It is now plainly evident that Microsoft is finally serious on embarking in a major strategic shift to confront both the challenge and opportunity posed by news advertisement and transaction supported online services and hosted applications.”
Rick Sherlund, Goldman Sachs (via Reuters): “We believe Microsoft has been working to implement a strategic vision to leverage some unique advantages and become a player along with Google and Yahoo in the market for online advertising.”
Update: Microsoft CEO Steve Ballmer tried to explain the current strategy to employees Monday with an internal memo … Ballmer (via Todd Bishop): “The bottom-line result of these investments created a shift in our near-term profitability that was a surprise. The change in our stock price reflects this. But I’ve never been more confident that we are making the right investments. … We have made and we continue to make the investments needed to ensure strong growth for our core businesses, while delivering the innovation that is essential to establishing a leadership position where we see opportunities in businesses such as entertainment, mobile devices, search and software-based Internet services.”

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