There are write downs — and then there are write downs. Microsoft is wiping the books clean of almost all of the $6.3 billion it paid for interactive ad company aQuantive in 2007.
The company is taking a $6.2 billion non-cash, non-tax deductible charge against the goodwill in its Online Services group for the fourth quarter of the fiscal year that just ended. The announcement came after the market closed Monday.
The splashy acquisition, which included Avenue A/Razorfish, was meant to counter Google’s DoubleClick buy and to give far-behind Microsoft a much-needed boost in online advertising. Microsoft CEO Steve Ballmer called it the next step in the evolution of Microsoft’s ad network. Rather than risk having the then-hot property fall into the hands of frenemy WPP or others, Ballmer offered an 85% premium. The deal cost Microsoft $6.3 billion in cash when it closed that August.
After the deal, Ballmer suggested advertising could make up a quarter of the company’s revenue in a few years. It never came close to fulfilling that kind of promise. Or, as Microsoft put it in Monday’s announcement:
While the aQuantive acquisition continues to provide tools for Microsoft’s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write down.
When it came time for this year’s annual goodwill check of whether the intangible assets are worth as much as a company paid, Microsoft admitted it wasn’t and wasn’t likely to do so. The acquisition accounted for nearly all of the goodwill claimed by the Online Services Division (OSD). The division includes search engine Bing, MSN and adCenter. In the third quarter of FY2012, it brought in $707 million in revenue — a 6% year-over-year increase — and lost $479 million with the slight victory of cutting its operating loss by some $300 million.
The announcement included a warning about the entire division:
While the Online Services Division business has been improving, the company’s expectations for future growth and profitability are lower than previous estimates.
As vast as the amount sounds, it was barely a blip for Microsoft then and it’s barely one now.
As to what it says about Microsoft, there’s not much new other than, possibly, the admission that the company is getting a lot more realistic about its Online Services Division. We’ve know for years that Microsoft hasn’t been able to crack the nut on interactive advertising.
As CNBC analyst Hank Greenberg pointed out, it says more about how companies with a lot of money are likely to pay too much. He wondered if we’ll be hearing the same announcement down the road from Facebook on Instagram or some other big-ticket acquisitions.