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Our sleep-deprived managing editor lays out what we changed and why. Have a look, and, as always, we encourage you to give your take on our Improve the Fool discussion board.

In today's Motley Fool Take:

Microsoft's Tempting Price

Those who think Microsoft(Nasdaq: MSFT) is too big to grow should take note of some of the announcements rolling out of Redmond today.

First, there's the software giant's soon-to-be-released OneNote application, which has attracted 30,000 beta users since its unveiling in November. The product provides a digital replacement for your legal pad -- a pretty nifty concept. Designed with the Tablet PC specifically in mind, OneNote is also compatible with desktops and laptops. Users can easily rearrange the contents of their notes, organize them according to personal preference, quickly search across all notes, and email them from within the application.

Also today, Microsoft announced its Xbox Live online gaming service has attracted more than 350,000 subscribers -- an impressive start since its Nov. 15, 2002 launch. Significantly, in the first three months of availability, Xbox Live Starter Kits have outsold the number of Sony PlayStation2 Network Adapters by nearly 44%. That's especially remarkable considering that PS2 consoles have two-thirds of the gaming market.

While it's very early in the online gaming race, Microsoft's early lead could mark a critical turning point in the long-term direction of the gaming industry. Whichever company ultimately attracts the largest online community will have a strong edge in attracting gamers to its consoles.

Some pretty exciting stuff's going on up in Redmond. Obviously, these developments are a sideshow to Microsoft's major money-making franchises, Windows and Office, but these types of incremental innovations are likely to play a significant role in driving future revenue growth.

For those who believe Microsoft's long-term future holds promise, the stock may be worth a look at current levels. At around $23.30, the company has a market cap of $253.6 billion. If you back out its cash hoard of $56.1 billion, you get an enterprise value (EV) of $197.5 billion. Comparing that figure to free cash flow over the past year of $14.1 billion reveals an EV-to-FCF multiple of only 14. That's significantly cheaper than the S&P 500's average price-to-free cash flow of 20.3.

One wonders how Warren Buffett could say stocks are still unattractive when Microsoft is available at this kind of price.

Quote of Note

"If we don't change, we don't grow. If we don't grow, we aren't really living."-- Gail Sheehy, American writer, journalist, and editor

Greenspan : Housing Will Cool

Today, perhaps the closest thing the government has to a sage turned his thoughts to the housing market and its five-year boom.

In a speech to bankers in Florida, Federal Reserve Board Chairman Alan Greenspan said that after home prices climbed 7% last year and by one-third the previous four years, it's unreasonable to expect such price increases to continue.

Greenspan said home prices could decline in some regional markets, although he doesn't see a national "supply overhang" in new homes. And he doesn't equate the housing market to a "bubble." He does expect mortgage activity for buying, refinancing, and equity extraction to slow considerably this year, though, and that could dampen consumer spending.

Median prices for new and existing homes declined in January from December, but were higher than the year before. Mortgage rates aren't declining as they had been, and interest rates aren't expected to go much lower than current 41-year lows. But the most likely sedative to the housing market, Greenspan said, will eventually be rising interest rates. The Fed meets on March 18, and a rate change is not expected.

In a nutshell, Greenspan expects the housing market to "simmer down." Given how hot it has been for five years, "simmer down" may be an understatement, if history is a guide.

Speaking of history, let's take a look at Greenspan's track record. On Dec. 5, 1996, he immortalized the phrase "irrational exuberance" in describing the U.S. equity markets. At the time, the S&P 500 traded at 23 times earnings. By March 2000, the S&P had nearly doubled, and traded near a record 34 times earnings. Then it finally began to fall.

So, was Greenspan correct when he spoke the phrase, or just lucky four years later?

The S&P 500 was valued at 745 on Dec. 4, 1996. Today, it's at 830. Excluding dividends, that's a cumulative gain of only 11% in the six years and three months since Greenspan's comment. History says Greenspan was right, even though he droned his famous two words years before the great bull market roared loudest.

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Google's Banner Day

Popular search engine Google is stretching its wings once again, this time flying into the world of targeted advertising. The privately held California company unveiled a service today that promises to serve relevant ads on third-party websites in a completely automated fashion.

A real example of the process can be found on the HowStuffWorks website. Typing "transmissions" into the search box brings up a page describing how transmissions work (obviously), as well as a "Featured Results" column with ads for companies that sell or rebuild transmissions. It's much the same for any product: cameras, cell phones, electric dog polishers, and so forth. Even a page about pies brought up an unobtrusive ad for "Gourmet Pies Delivered -- Apple, Cherry, Pecan, Peach, Keylime Chocolate & more. Great gift idea." Mmmmm... pies.

Today's news is a shot across the bow of companies such as DoubleClick(Nasdaq: DCLK). While DoubleClick may have proprietary technology of its own to serve effective ads, only Google searches the content of Web pages to bring up targeted ads -- a process it claims produces click-through rates at least five times higher than the industry average.

It's hard not to be impressed with the recent rollout of features on Google. Its News section somehow produces a completely automated, relevant, timely page that easily keeps users abreast of current events. Froogle finds products for sale online. Google Catalogs allows you to search and browse retailers' mail-order catalogs online. There are other features, including search via telephone calls, which are almost ready for prime time.

All in all, the company with the world's No. 1 brand is stepping on toes from Yahoo!(Nasdaq: YHOO) to Overture(Nasdaq: OVER) and seems to be more than ready for its much-anticipated IPO. No word yet on when that might be, though Forbes -- which said Google had about $300 million in 2002 revenue and $100 million in profit -- predicts it's coming soon.

Discussion Board of the Day: Marvel

Did you catch Daredevil last month? Now that Marvel has tripled off its lows, will it go back into hiding or continue to inch forward? All this and more -- in the Marvel discussion board. Only on

Quick Takes

It's not a good thing. Martha Stewart Omnimedia(NYSE: MSO) posted a fourth-quarter loss of $0.03 a share today, courtesy of a $7.7 million restructuring charge. Not counting the charge, it earned $0.06 a share, compared to $0.13 a share in 2001's Q4. Revenues suffered as well, down to $77.6 million from the year-ago quarter's $82.7 million. The ongoing probe into its namesake's trading activities is hurting business, and executives don't anticipate it getting better soon. The company will post a loss for its first quarter of $0.06-$0.08 a share. Analysts were looking for a profit of $0.03.

Victoria's Secret, a division of The Limited(NYSE: LTD), lost its Supreme Court appeal today. The lingerie company sued a small Kentucky adult novelty shop called Victor's Little Secret, hoping to prove trademark dilution. The court said, "... the name 'Victor's Little Secret' neither confused any customers or potential customers, nor was it likely to do so." Victor's Little Secret can continue to provide (as its slogan says) "Everything for Romantic Encounters," and Kentucky residents can breathe a heavy sigh of relief.

Altria's (NYSE: MO) Philip Morris USA unit is moving south. Over the next 15 months, its headquarters will relocate from New York, N.Y., to Richmond, Va. Parent company Altria will keep its corporate headquarters in NYC. The move will cost about $120 million, but will eventually save the company $60 million a year. The relocation will affect 5% of Altria's workers, and all eligible salaried employees will have the chance to move to Virginia.

Warehouse club retailer BJ's Wholesale(NYSE: BJ) reported a 14% drop in quarterly income today, as it faces fierce competition from Costco(Nasdaq: COST) and Wal-Mart's(NYSE: WMT) Sam's Club division. Its current fiscal year earnings will likely come in between $1.25-$1.35 a share, far below analysts' expectations of $1.71. The warning stems from increased spending in an effort to better compete with its rivals. BJ's will invest in better-quality merchandise and remodel its stores.

And Finally...

Today on

  • What's New on More opinions, hands-on help, and pictures, too. Our managing editor has the details.
  • The Cost of War: Fool writers offer timeless advice in uncertain times.
  • For updated stories throughout the day, bookmark our ever-changing News section.
  • Sex, Drugs, 'n' Rockin' Ratios: One online drugstore intrigues Tom Jacobs.
  • Dayana Yochim says it's time to dump some plastic from your wallet.
  • Retailer Pacific Sunwear's results and future look totally gnarly.
  • Comics king Marvel takes 2002 with ease and flexes its muscles for 2003.
  • In Fool's School, online tips for saving money.

Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim