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Microsoft Corp reports 40.4% CAPEX growth while 8.8% Revenue decline

19/07/2016 • About Microsoft Corp ($4338) • By InTwits

Microsoft Corp reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:
  • Microsoft Corp has medium CAPEX intensity: 5 year average CAPEX/Revenue was 6.1%. At the same time it's in pair with industry average of 6.1%.
  • CAPEX is quite volatile: 8,343 in FY2016, 5,944 in FY2015, 5,485 in FY2014, 4,257 in FY2013, 2,305 in FY2012
  • The company has highly profitable business model: ROIC is at 20.0%
  • It operates with high leverage: Net Debt/EBITDA is 1.4x while industry average is -2.0x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Microsoft Corp ($4338) key annual financial indicators

mln. $201220132014201520162016/2015
Gross Profit56,19357,60059,75560,54258,374-3.6%
Net Income16,97821,86322,07412,19320,53968.4%
Balance Sheet
Short Term Debt1,2312,9992,0007,48412,90472.4%
Long Term Debt10,71312,60120,64527,80840,55745.8%
Cash flow
Revenue growth5.4%5.6%11.5%7.8%-2.6%
EBITDA growth-17.4%23.4%8.0%-26.9%35.6%
Gross Margin76.2%74.0%68.8%64.7%64.0%-0.7%
EBITDA Margin33.5%39.2%38.0%25.8%35.9%10.1%
Net Income Margin23.0%28.1%25.4%13.0%22.5%9.5%
SG&A, % of revenue25.0%26.2%23.6%21.7%21.1%-0.7%
CAPEX, % of revenue3.1%5.5%6.3%6.4%9.2%2.8%
Net Debt/EBITDA0.2x0.4x0.4x1.2x1.4x0.2x

Microsoft Corp ($4338) key quoterly financial indicators

mln. $FY16Q1FY16Q2FY16Q3FY16Q4YoY change
Net Income5,0695,9384,3055,227
Balance Sheet
Short Term Debt10,7483,7505,49812,904
Long Term Debt27,81940,67940,89640,557
Gross Margin65.5%60.9%64.1%66.0%
EBITDA Margin 37.2% 35.8% 37.1% 33.7%
Net Income Margin 24.2% 23.5% 20.0% 22.3%

Revenue and profitability

The company's Revenue decreased on 2.6%. Despite revenue decline the EBITDA margin expanded. EBITDA Margin jumped on 10.1 pp from 25.8% to 35.9% in FY2016.

Gross Margin decreased slightly on 0.66 pp from 64.7% to 64.0% in FY2016. SG&A as a % of Revenue decreased slightly on 0.66 pp from 21.7% to 21.1% in FY2016.

Net Income marign increased on 9.5 pp from 13.0% to 22.5% in FY2016.

Capital expenditures (CAPEX) and working capital investments

In FY2016 Microsoft Corp had CAPEX/Revenue of 9.2%. The company showed CAPEX/Revenue growth of 3.7 pp from 5.5% in FY2013 to 9.2% in FY2016. Average CAPEX/Revenue for the last three years was 7.3%.

Return on investment

The company operates at high and attractive ROE (25.17%) while ROIC is a bit lower (19.98%). ROIC increased on 4.4 pp from 15.6% to 20.0% in FY2016. ROE jumped on 10.8 pp from 14.4% to 25.2% in FY2016.

Leverage (Debt)

Debt level is 1.4x Net Debt / EBITDA and 1.6x Debt / EBITDA. Net Debt / EBITDA jumped on 0.2x from 1.2x to 1.4x in FY2016. Debt surged on 51.5% while cash surged on 16.4%.

Management team

The company's CEO is Satya Nadella. Satya Nadella has 4 years tenure at the company. Amy E Hood is a The company's CFO. Amy E Hood has spent 5 years at the company.

Appendix 1: Peers in Software

Below you can find Microsoft Corp benchmarking vs. other companies in Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
Yunbo Digital Synergy Group Ltd ($8050)241.6%-31.9%348.0%99.6%
Pizu Group Holdings Ltd ($8053)-42.9%1,742.9%157.9%235.2%
China Eco-Farming Ltd ($8166)-23.6%-7.7%21.8%155.5%
ICO Group Ltd ($8140)-11.1%-3.1%104.9%29.8%
Aurum Pacific China Group Ltd ($8148)50.0%92.7%
Median (37 companies)19.9%11.2%21.2%10.7%10.0%
Microsoft Corp ($4338)7.8%-2.6%

Top companies by Gross margin, %

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
China Bio Cassava Holdings Ltd ($8129)90.4%97.4%98.4%98.3%
Chanjet Information Technology Co Ltd ($1588)89.2%91.3%92.4%91.4%
China Binary Sale Technology Ltd ($8255)63.5%68.5%67.7%85.9%
Kingdee International Software Group Co Ltd ($268)65.0%75.3%82.5%81.5%
Tian Ge Interactive Holdings Ltd ($1980)88.5%87.6%84.8%77.7%
Median (36 companies)44.3%40.5%39.7%41.4%27.8%
Microsoft Corp ($4338)68.8%64.7%64.0%

Top companies by EBITDA margin, %

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
International Entertainment Corp ($1009)50.8%64.0%54.9%62.0%45.5%
Sinosoft Technology Group Ltd ($1297)62.6%54.9%57.2%59.0%
China Binary Sale Technology Ltd ($8255)35.1%35.4%44.4%50.5%
Boyaa Interactive International Ltd ($434)38.5%25.8%30.7%47.6%
TravelSky Technology Ltd ($696)38.1%35.8%31.9%41.1%
Median (37 companies)9.8%11.1%9.1%9.1%2.4%
Microsoft Corp ($4338)38.0%25.8%35.9%

Top companies by CAPEX/Revenue, %

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
NetDragon Websoft Inc ($777)21.1%34.6%54.6%42.9%
China Information Technology Development Ltd ($8178)4.1%1.1%0.5%40.7%
Aurum Pacific China Group Ltd ($8148)2.9%7.5%20.6%
TravelSky Technology Ltd ($696)8.9%21.7%18.1%18.1%
Kingsoft Corp Ltd ($3888)4.3%3.8%14.3%11.1%
Median (37 companies)1.4%1.6%3.1%2.0%0.8%
Microsoft Corp ($4338)6.3%6.4%9.2%

Top companies by ROIC, %

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
Pizu Group Holdings Ltd ($8053)-21.8%-13.4%-6.8%120.0%51.7%
ICO Group Ltd ($8140)43.5%6.8%37.7%27.1%
IGG Inc ($8002)55.9%41.4%25.9%
Boyaa Interactive International Ltd ($434)75.3%21.3%20.0%21.4%
Sinosoft Technology Group Ltd ($1297)34.0%21.9%20.2%20.8%
Median (37 companies)5.2%6.4%3.9%2.2%2.3%
Microsoft Corp ($4338)26.2%15.6%20.0%

Top companies by Net Debt / EBITDA

Top 5 FY2012 FY2013 FY2014 FY2015 FY2016
Epicurean and Co Ltd ($8213)2.3x4.7x12.3x12.0x13.9x
Sing Lee Software Group Ltd ($8076)6.2x4.4x
Century Sage Scientific Holdings Ltd ($1450)0.2x0.0x-0.2x1.8x
Chinasoft International Ltd ($354)-0.7x0.7x1.5x0.7x
China Technology Solar Power Holdings Ltd ($8111)7.4x3.3x0.2x0.9x
Median (21 companies)-1.0x-1.5x-1.8x-1.2x-0.4x
Microsoft Corp ($4338)0.4x1.2x1.4x