Microsoft ought to kick off search for Bing buyer
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK — Microsoft needs to concentrate on a different kind of search: finding a buyer for Bing, its online search business. The industry’s distant number two is a distraction for the software giant — and one that costs shareholders dearly. The division that houses Bing lost $2.6 billion in the latest fiscal year. Facebook, or even Apple, might make a better home for Bing. And a sale would be a boon for Microsoft’s investors.
Microsoft has been pouring money into Bing — this year’s losses are greater than the previous year. The company thinks search makes Microsoft’s offerings in everything from mobile phones to business software more compelling. Perhaps, but there’s little evidence to date. And Bing and sites it powers like Yahoo still only control about 27 percent of the U.S. market. Google has more than twice as much.
Advertisers don’t want a monopoly in the search business, which should assure Bing of some future revenue. And Google may be partially hamstrung in competition by antitrust probes worldwide. But the business has more value to a buyer that could bring it traffic.
How much? Microsoft’s online services unit, of which Bing is far and away the biggest component, had $2.5 billion of sales in the year ended June 30. Google is valued at about six times sales over the last 12 months. At a 25 percent discount to Google, the unit would be worth about $11 billion if sold.
Moreover, there are potential buyers. Facebook already works with Bing. It might be interested in buying the site, keeping more traffic onsite, and perhaps using its voluminous data to better tweak search results — that would be a potent weapon in its fight with Google, which recently rolled out social network Google+. Apple might even be interested, given its growing online ambitions.
In a deal, Microsoft could either get paper in a highly coveted company or cash, which Microsoft to its credit has been good about returning to shareholders. Equally, it could buy back stock, as the company trades at nine times estimated earnings — almost a 20 percent discount to the S&P 500.
On top of any proceeds a sale would bring, it would stanch losses, like this year’s $2.5 billion. Without these, Microsoft would have made 10 percent more profit. That’s something that would excite even jaded Microsoft investors.