Preston Gralla

Steve Ballmer: Don't blame me for Microsoft's stagnant stock price, blame the market

November 20, 2013 5:21 PM EST

At Steve Ballmer's farewell stockholder's meeting yesterday, he intimated that Microsoft's stagnant stock price for more than a decade hasn't been a result of his leadership, but instead due to a stock market that hasn't recognized Microsoft's underlying value. Is that an excuse, or does he have a point?

Chief among criticisms of Steve Ballmer's 13-year tenure at Microsoft has been that under his leadership, Microsoft's stock has price has fallen and then stagnated. There's no denying that Microsoft's stock price has fallen over that time. He took over as CEO in January 2000, when the stock price was in the high 50s. Over time it fell into the 30s, and has stayed there ever since.

When a shareholder asked him about the company's stock price at the meeting, according to GeekWire he answered that it is:

"...hard to predict share prices, but at the end of the day, they have to have something to do with profit. Our stock price is 60 percent, maybe, of what it was when I took over as CEO. Profits are three times what they were when I took over as CEO. Now, I don't know how to answer your question. But what I do know is, if we continue to make the investments that lead to valuable products that people will pay for in a way that generates profit, the stock price responds to that."

Do the math about the stock price, and you'll see he's pretty much on-target -- Microsoft closed today at $37.08, right around 60% of what it was when he took over. And GeekWire reports that when Ballmer took over Microsoft, its net income was $7.8 billion, and in fiscal 2013 it was $21.8 billion --- right around three times what it was when he became CEO.

That certainly sounds like a disconnect --- profits tripled while the stock price fell 60%. And to that extent, Ballmer has a strong point. The market has punished Microsoft even though its underlying fundamentals are strong.

But there's something else at work as well. Often investors look for the potential for big future growth from high-tech companies, and Microsoft has failed in the big growth areas, notably mobile and the Internet. Investors haven't believed that Microsoft's best days are ahead of it, and because of that haven't been willing to pay a premium for its stock. And in recent years, some investors haven't trusted Ballmer's leadership, and that may well have also depressed the stock price.

So Ballmer certainly has a point, but he's also ignoring the role that Microsoft's failures in high-growth areas have hurt the company.