Microsoft (MSFT) has tabbed Jerry Seinfeld to be its newest spokesman. In return for his appearances on commercials with Bill Gates, the company will fork over $10 million to Seinfeld. This is just one part of a $300 million campaign to counter the awful reputation that MSFT’s latest operating system (OS) Vista (Del Boca Vista?) has earned since its release. Much of this reputation has been brought about by the wildly successful Apple (AAPL) commercials portraying Microsoft as dull, drab and inferior. The ad campaign’s new catch-phrase has been reported to be “Windows Not Walls,” or something similar. Customers were turned off by early difficulties with Vista and still many find it difficult to operate. One of the spots for AAPL’s campaign shows a customer focus group held by Microsoft in which people with a bad perception of Vista were given a chance to try the “new” OS called Mojave. Inevitably, the focus group had a more favorable opinion of “Mojave” only to find out it was simply Vista re-labeled. Microsoft has been battered by clever ads from Apple and now it seeks to re-channel the discussion away from Vista’s flaws. Seinfeld is intended to bring enough star power to drive a new message.

Microsoft is pretty far behind Apple in the operating system public relations battle, but in terms of sheer usage, Microsoft remains the heavyweight. Apple has experienced rapid sales growth for its laptop and desktop computers, but as of the second quarter, still only 7.8% of computers shipped were Apples. The rest were overwhelmingly dominated by Windows-based systems. Furthermore, for the fiscal year ended June 30, 2008, Windows accounted for 28% of Microsoft’s revenue. Vista is a large component of sales, but the company has other established brands such as the Microsoft Office Suite. Overall revenue for the company continues to grow rather rapidly. Revenue totaled more than $60 billion last year and if you continue the same growth pattern that MSFT revenue has followed for the last 5 years, revenue will top $70 billion by fiscal 2010.

At Ockham Research we employ a value investing methodology, so we are typically intrigued when we find an industry leader with a depressed stock price. Looking at Microsoft’s fundamentals, it is undeniable that the stock has been affected by the negativity surrounding Vista. Microsoft has historically traded between 20.5x and 30.3x cash earnings, but as off its last reported earnings that metric is only 12.9x. Likewise, the rapid sales growth has not yet been priced into the stock as it currently trades at 4.2x, while the stock has historically been able to fetch 6.6x to 10.1x revenue. Some people have made the argument that management has dropped off since Gates stepped down in favor of Steve Ballmer but we will let the company’s Return on Equity—a key measure of management efficacy—speak for itself; it has risen every year since 2004 from 10.9% to almost 50% this year.

So, for all the hoopla generated by those clever Mac ads, Microsoft’s Vista is still selling far better. Microsoft hopes that Jerry Seinfeld will be able to tell its side of the story, much as he did in the acclaimed American Express (AXP) ad campaign in 2004. From a value perspective, there is certainly a case to be made for MSFT and we have it rated a Strong Buy. We think that the company’s growth of the last few years has been under-appreciated by the market and that will not go unnoticed for long. As for the decision to hire Mr. Seinfeld, well, yada, yada, yada.