Because the numbers don’t lie


And also, Shazam!

Comments (6)

  1. Lauren Smith says:

    The sheer volume of revenue generated by Microsoft is overwhelming, but the author of the article doesn’t judge MSFT stock based on the numbers he puts up. Since he is comparing the amount of revenue per time unit (sometimes hours, sometimes weeks), it makes sense to compare the market capitalization of these companies vs the speed with which they generate revenue.

    The first thing that grabs you is that all of the companies he lists have market caps smaller than Microsoft. This is their market cap versus MSFT’s:

    RHT: 1.3%

    RIMM: 8.5%

    SBUX: 8%

    NKE: 9%

    MCD: 20.2%

    AAPL: 29.3%

    GOOG: 49.6%

    KO: 41.2%

    IBM: 51.5%

    WMT: 67.3%

    Then, if we compare the speed with which each company generates revenue vs MSFT, we can come up with market cap versus time (versus MSFT). The following is the multiple of the previous ratio compared to Microsoft. MSFT gets a ‘0’ here because it always makes exactly the amount it makes.

    RHT: 2.0x

    RIMM: .93x

    SBUX: .82x

    NKE: .18x

    MCD: .32x

    AAPL: .9x

    GOOG: 1.51x

    KO: .63x

    IBM: .34x

    WMT: -.12x

    The two standouts of market cap heaviness compared to MSFT are RedHat and Google. RIMM, SBUX, and Apple are also return more market cap per revenue dollar than Microsoft does. Walmart under-returns Microsoft!

    The problem is that there really isn’t a good benchmark to compare Microsoft to, especially among the examples the author lists. Microsoft is huge and does so many things that any one company can’t be effectively used for comparative purposes. The closest is probably IBM, but IBM is in its twilight years.

    However, if we take the listed stocks as valid benchmarks, then it’s difficult to understand what he’s trying to say. Microsoft is valued about 50-70% lower per revenue dollar than other "computer companies". It is about in line with companies similar in size, within a handful of percentage points. Is MSFT under-valued? Is MSFT growing at a 50-70% slower rate compared to its sector? The author doesn’t approach these important stock investment questions.

    Microsoft is an amazing company with amazing people, and the money it generates is even more amazing. But does that amazingness translate to a stock buy? I need more info.

  2. crawdad13 says:

    I just read this out loud to my wife.  I should stop sending cover letters and just put a link to this with a headline…"Why I want to work for Microsoft!"

    – by Darren Cox

  3. HeatherLeigh says:

    Lauren – the post appealed to me due to my love of trivia. I didn’t take it as anything more. But I can tell you for sure that you will NOT be getting any stock advice here! Whoah, I am so not going there. It was hard enough to keep up with the Apprentice stuff.

    Darren- well, you know how we feek about cover letters anyway!

  4. Paul says:

    The numbers may not lie, but they only tell half the truth.

    As a stock buyer, the ability of MSFT to throw off free cash flow compared with the other companies mentioned is astounding and makes it a value play.  And, I’m really liking that I bought a ton of it at $21 last year.  However, what’s interesting is that as Microsoft has grown and become part of the establishment, the market no longer views it as a growth company — growth companies command premiums on the stock price beyond the normal PE ratio for their sector.  (i.e. like Google, et al)

    In the short term, I like that the new generation of OS and Office products is producing ahead of expectations, and in 6 to 9 months, I would expect to see more of this reflected in the stock price / market cap / dividends pay out.  But sheer bigness is a reflection of past glory which results in current sales, not an indicator of future growth, and given the current status quo, I wouldn’t expect MSFT to ever return to the glory days when the stock could be counted on to at least double in value every year.

    Longer term, I have concerns that if Microsoft lets itself believe that Redhat isn’t a threat because of sheer scale and current market significance (MSFT takes 10 hours to beat RHT’s quarterly net income), then the management sets itself up for market disruption and a future big fall from grace.  There was a time in the mid to late 1980s when Microsoft was equally insignificant when compared with IBM, in particular, but also GM, Walmart and McDonalds.  If you looked at the comparative growth curves of that set of companies from then to now, and created an up-to-date analog for Microsoft, Google, Redhat, Apple and RIM since 2001 to now, looking forward would be very instructive.

    Give yourselves a pat on the back, but don’t get smug and don’t forget how you got where you are.   Be and stay paranoid.  It worked for Moore and Noyce ( ).

  5. HeatherLeigh says:

    I didn’t see anything in the post that implied that we were discounting any of those companies. I’m sure you will correct me if I am wrong, but it wasn’t written by a Microsoft employee.

    I am not feeling any particular smugness. I just thought the post was interesting. I don’t load up my blog with a lot of "Yay, Microsoft!" stuff, so you’ll have to indulge the occassional post (or ignore it, if you like), simply becasue I like my commpany and I am loving my job.

  6. Paul says:

    It was the Pow and Shazam.   I believe that for you it’s just a warranted expression of joy, but others might let comparisons like that go to their heads.

    It’s all good.  I’ve made a 50% gain in less than a year.  I’m just saying . . .