Microsoft Corp CAPEX surged on 43.1% and Revenue surged on 14.3%
07/19/2018 • About Microsoft Corp (
$MSFT) • By InTwits
Microsoft Corp reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- EBITDA Margin is expanding: 42.5% in FY2018 vs. 40.5% in FY2017 vs. 38.0% in FY2014
- Microsoft Corp has medium CAPEX intensity: 5 year average CAPEX/Revenue was 8.2%. At the same time it's in pair with industry average of 10.5%
- The company has highly profitable business model: ROIC is 19.5%
- It operates with medium-size leverage: Net Debt/EBITDA is 1.6x while industry average is 1.6x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 14.3%. Revenue growth showed acceleration in FY18Q4 - it increased 17.5% YoY. During the last 5 years Revenue growth bottomed in FY2016 at -2.6% and was accelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 2.0 pp from 40.5% to 42.5% in FY2018. During the last 5 years EBITDA Margin bottomed in FY2015 at 25.8% and was growing since that time.
Gross Margin increased slightly on 0.72 pp from 64.5% to 65.2% in FY2018. During the last 5 years Gross Margin bottomed in FY2016 at 64.0% and was growing since that time. SG&A as a % of Revenue decreased slightly on 0.51 pp from 20.7% to 20.1% in FY2018. SG&A as a % of Revenue declined at -0.80 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. SBC as a % of Revenue followed a growing trend at 0.21 pp per annum in FY2014-FY2018.
Net Income margin dropped on 11.4 pp from 26.4% to 15.0% in FY2018. The efficient tax rate was 54.6% in FY2018 while the average for the last five years was 30.0%.
Investments (CAPEX, working capital and M&A)
Microsoft Corp's CAPEX/Revenue was 10.5% in FY2018. CAPEX/Revenue increased on 4.2 pp from 6.4% in FY2015 to 10.5% in FY2018. It's average level of CAPEX/Revenue for the last three years was 9.4%. CAPEX as a % of Revenue stuck to a growing trend at 1.1 pp per annum in FY2014-FY2018.
Accounts receivable as a % of Revenue increased slightly on 0.77 pp from 23.2% to 24.0% in FY2018. Inventories as a % of Revenue showed almost no change at 2.4% in FY2018. Accounts payable as a % of Revenue increased slightly on 0.90 pp from 21.6% to 22.5% in FY2018.
Microsoft Corp has spent
$888m on M&A in FY2018 which accounts for 0.80% of revenue.
Return on investment
The company operates at good ROIC (19.5%) and ROE (19.4%). ROIC increased on 2.2 pp from 17.3% to 19.5% in FY2018. ROE dropped on 10.4 pp from 29.8% to 19.4% in FY2018.
Leverage (Debt)
Debt level is 1.6x Net Debt / EBITDA and 1.9x Debt / EBITDA. Net Debt / EBITDA dropped on 0.6x from 2.2x to 1.6x in FY2018. Debt decreased on 8.4% while cash jumped on 55.9%. During FY2014-FY2018 Net Debt/EBITDA topped in FY2017 at 2.2x.
Microsoft Corp has good short term financial stability: Interest coverage ratio (ICR) is 13.4x. Microsoft Corp has no short term refinancing risk: cash is higher than short term debt (214.4%).
Average interest expence paid by the company was 3.1% in FY2018.
Valuation and dividends
Microsoft Corp's trades at EV/EBITDA 19.6x and P/E 50.8x.
The company paid 76.6% of Net Income as dividends in FY2018. Dividends grew on average at 7.4% per annum in the last 5 years).
Management team
Microsoft Corp's CEO Satya Nadella has spent 5 years with the company. CEO total compensation was
$25,843,263 in FY2018 which included
$1,500,000 salary. Amy E Hood is a the company's CFO. Amy E Hood has spent 3 years at the company.
The company has 1.4% shares owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 131,000 employees. The number of employees increased on 5.6%. Average revenue per employee in FY2018 was
$842,443 and it increased on 8.2%.
Financial and operational results
FY ended 06/30/2018
Microsoft Corp ($MSFT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 86,833 | 93,580 | 91,154 | 96,571 | 110,360 | 14.3% |
| Gross Profit | 59,755 | 60,542 | 58,374 | 62,310 | 72,007 | 15.6% |
| SG&A | 20,488 | 20,324 | 19,198 | 19,942 | 22,223 | 11.4% |
| EBITDA | 32,971 | 24,118 | 33,700 | 39,103 | 46,904 | 19.9% |
| EBIT | 27,759 | 18,161 | 27,078 | 30,325 | 36,643 | 20.8% |
| Interest expence | 597 | 781 | 1,243 | 2,222 | 2,733 | 23.0% |
| Tax | 5,746 | 6,314 | 5,100 | 4,412 | 19,903 | 351.1% |
| Net Income | 22,074 | 12,193 | 20,539 | 25,489 | 16,571 | -35.0% |
| Stock Based Compensation | 2,446 | 2,574 | 2,668 | 3,266 | 3,940 | 20.6% |
Balance Sheet
|
|---|
| Cash | 8,669 | 5,595 | 6,510 | 7,663 | 11,946 | 55.9% |
| Accounts Receivable | 19,544 | 17,908 | 20,636 | 22,431 | 26,481 | 18.1% |
| Inventory | 2,660 | 2,902 | 2,251 | 2,181 | 2,662 | 22.1% |
| Accounts Payable | 7,432 | 6,591 | 6,898 | 7,390 | 8,617 | 16.6% |
| Short Term Debt | 2,000 | 7,484 | 12,904 | 11,657 | 5,573 | -52.2% |
| Long Term Debt | 20,645 | 27,808 | 44,814 | 83,870 | 81,935 | -2.3% |
Cash flow
|
|---|
| Capex | 5,485 | 5,944 | 8,343 | 8,129 | 11,632 | 43.1% |
| Dividends | 8,879 | 9,882 | 11,006 | 11,845 | 12,699 | 7.2% |
| Acquisitions | 5,937 | 3,723 | 1,393 | 25,944 | 888 | -96.6% |
Ratios
|
|---|
| Revenue growth | 11.5% | 7.8% | -2.6% | 5.9% | 14.3% | |
| EBITDA growth | 8.0% | -26.9% | 39.7% | 16.0% | 19.9% | |
|
|---|
| Gross Margin | 68.8% | 64.7% | 64.0% | 64.5% | 65.2% | 0.7% |
| EBITDA Margin | 38.0% | 25.8% | 37.0% | 40.5% | 42.5% | 2.0% |
| EBIT Margin | 32.0% | 19.4% | 29.7% | 31.4% | 33.2% | 1.8% |
| SG&A, % of revenue | 23.6% | 21.7% | 21.1% | 20.7% | 20.1% | -0.5% |
| SBC, % of revenue | 2.8% | 2.8% | 2.9% | 3.4% | 3.6% | 0.2% |
| Net Income Margin | 25.4% | 13.0% | 22.5% | 26.4% | 15.0% | -11.4% |
| CAPEX, % of revenue | 6.3% | 6.4% | 9.2% | 8.4% | 10.5% | 2.1% |
|
|---|
| ROIC | 26.2% | 15.6% | 19.7% | 17.3% | 19.5% | 2.2% |
| ROE | 26.2% | 14.4% | 25.2% | 29.8% | 19.4% | -10.4% |
| Net Debt/EBITDA | 0.4x | 1.2x | 1.5x | 2.2x | 1.6x | -0.6x |
| Interest expence / Average debt | 2.6% | 2.7% | 2.7% | 2.9% | 3.1% | 0.2% |
People
|
|---|
| Insider ownership | 1.4% | 1.4% | 1.4% | 1.4% | 1.4% | 0.0% |
| Employees | 128,000 | 118,000 | 114,000 | 124,000 | 131,000 | 5.6% |
| Revenue/Employee, th. $ | 678 | 793 | 800 | 779 | 842 | 8.2% |
Microsoft Corp ($MSFT) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 24,538 | 28,918 | 26,819 | 30,085 | | 11.9% | 12.0% | 15.5% | 17.5% |
| EBITDA | 10,595 | 11,614 | 11,397 | 13,298 | | 24.2% | 15.3% | 24.2% | 32.6% |
| Net Income | 6,576 | -6,302 | 7,424 | 8,873 | | 16.0% | -200.6% | 35.3% | 10.0% |
Balance Sheet
|
|---|
| Cash | 6,884 | 12,859 | 9,221 | 11,946 | | -50.6% | 51.9% | 37.4% | 55.9% |
| Short Term Debt | 10,618 | 17,411 | 5,240 | 5,573 | | -27.0% | -32.2% | -32.7% | -52.2% |
| Long Term Debt | 85,150 | 82,734 | 83,381 | 81,935 | | 41.6% | 39.5% | 9.4% | -2.3% |
Ratios
|
|---|
| Gross Margin | 66.3% | 61.7% | 65.4% | 67.6% | | 2.0% | 0.1% | 0.2% | 0.6% |
| EBITDA Margin | 43.2% | 40.2% | 42.5% | 44.2% | | 4.3% | 1.2% | 3.0% | 5.0% |
| Net Income Margin | 26.8% | -21.8% | 27.7% | 29.5% | | 1.0% | -46.1% | 4.0% | -2.0% |
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.
