is microsoft the next apple?
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Is Microsoft the next Apple?
October 16, 2013 Microsoft Corp. NASDAQ: MSFT
Disclosure!
2 For Investment Professional Use Only
Longboard Asset Management, LLC (“Longboard”) is an investment advisor to funds that are in the business of buying and selling securi>es and other financial instruments. Longboard currently has a long posi>on in MicrosoB Corpora>on (“MicrosoB”) common stock. We do not own any op>ons on MicrosoB common stock. Longboard will profit if MicrosoB stock increases in value and will lose money if it decreases in value. Longboard may change its views about or investment posi>on in MicrosoB at any >me for any reason or for no reason. Longboard may buy, sell, cover or otherwise change the form or substance of its MicrosoB investment. Longboard disclaims any obliga>on to no>fy the market of any such changes. The informa>on and opinions expressed in this presenta>on (the “Presenta>on”) is based on publicly available informa>on about MicrosoB. Longboard recognizes that others may disagree with Longboard’s analyses, conclusions and opinions. The Presenta>on includes forward-‐looking statements, es>mates, projec>ons and opinions. Such statements, es>mates, projec>ons and opinions may prove to be substan>ally inaccurate and are inherently subject to significant risks and uncertain>es beyond Longboard’s control. Although Longboard believes the Presenta>on is substan>ally accurate in all material respects and does not omit to state material facts necessary to make the statements therein not misleading, Longboard makes no representa>on or warranty, express or implied, as to the accuracy or completeness of the Presenta>on or any other wriNen or oral communica>on it makes with respect to MicrosoB and Longboard expressly disclaims any liability rela>ng to the Presenta>on or such communica>ons (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own independent inves>ga>on and analysis of the Presenta>on and of MicrosoB and other companies men>oned. The Presenta>on is not investment advice or a recommenda>on or solicita>on to buy or sell any securi>es. Except where otherwise indicated, the Presenta>on speaks as of the date hereof, and Longboard undertakes no obliga>on to correct, update or revise the Presenta>on or to otherwise provide any addi>onal materials. Longboard also undertakes no commitment to take or refrain from taking any ac>on with respect to MicrosoB or any other company. As used herein, except to the extent the context otherwise requires, Longboard includes its affiliates and its and their respec>ve partners, directors, officers and employees.
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“The rumors of my death have been greatly exaggerated.”
Perception vs. Reality!
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§ Microso> currently suffers from a legacy percepAon problem.
§ We think Mr. Market’s outlook for Mr. So>y does not match reality.
Reality
The MicrosoB Myth
PercepAon
MFST
The Future of Microsoft!§ We believe that Microso> stock
will trade over $60 within 3 years and that over the next 5 years Microso> will re-‐emerge as the market’s most valuable company.
§ The catalyst for this growth
will be driven by a market dominance in enterprise cloud compuAng and high value tools and services and a powerful differenAaAng plaOorm of Android + Windows hybrid devices.
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? Microsoft: MSFT ?
Why Microsoft?!
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Today… Tomorrow… The “One Microso>” turnaround strategy has successfully reposiAoned the company for enormous future growth, innovaAon, operaAng efficiency and accountability
Microso> grows to dominate the global enterprise cloud market
New incoming CEO and acAvist board members to maximize shareholder value and drive strategy execuAon
IntegraAon of dual OS Android + Windows hybrid devices is a game change strategy for the devices business
Microso> delivers a suite of the most producAve and differenAated devices in the world and the enterprise market adopts them
Current Market Perception!
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§ Microso> management has failed at everything in the last decade and Google, Facebook, Apple and Amazon are the new technology leaders.
Market Perception!
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§ Culturally irrelevant brand and legacy technology company of the 1990s.
Market Perception!
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§ Android and iOS are the technology OS standard of the future and Windows is a dying plaOorm that will destroy the Microso> franchise.
Perception vs. Reality!
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Percep>on Reality
Can’t win customers Dominant and growing enterprise company with high value products
Dying with PCs Growing recurring revenue base
Losing to Google, Amazon Office 365 is massive success
Irrelevant in Cloud #1 posiAoned enterprise cloud business growing exponenAally
Devices can’t compete Game changer opportunity with Android + Windows hybrid devices
Forget PCs, Enterprise is the Story!
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MicrosoB Business Division (MBD) + Server & Tools (S&T)
In $Bn
$16.9 (53%)
$16.5 (50%)
$17.2 (50%)
$20.9 (53%)
$23.9 (54%)
$45 $40 $35 $30 $25 $20 $15 $10 $5 0
2008 2009 2010 2011 2012
Revenue
EBIT1 (Margin)
1Excludes Corporate Expense and 2012 aQuanAve Charge Source: Company Financial Statements
$32.1 $33.1 $34.2
$39.2
$42.6
+8.0%
+7.4%
CAGR
Enterprise is 70% of EBIT and Growing! !
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MBD + S&T as Percentage of Total Business
70% 65% 60% 55% 50%
2008 2009 2010 2011 2012
% Revenue
% EBIT
1Excludes Corporate Expense and 2012 aQuanAve Charge Source: Company Financial Statements
These Businesses are now 70% of EBIT1
Growing Enterprise Businesses!
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Product Revenue Growth Rate Market Opportunity
SharePoint >$2Bn Growing Double Digits $9.5 Bn Content Management, Project Management, and CollaboraAon Market
Lync $400mm N/A $17Bn Unified CommunicaAons Market
System Center >$1Bn Growing > 20% $4Bn Server VirtualizaAon Market $19.5Bn IT OperaAons Market
Dynamics >$1Bn Growing Double Digits N/A
SQL Server >$5Bn 14.6% YOY Growth $28Bn RDBMS Market
Windows Azure >$1B? ExponenAal Growth MulA-‐Billion Dollar Opportunity
Visual Studio >$1Bn Growing Double Digits? N/A
ApplicaAon VirtualizaAon >$1Bn
Growing Double Digits? N/A
Source: SharePoint revenue from 11/12/2012 press release; Dynamics revenue from company financial statements; all other values from MSFT presentaAon at UBS Tech Conference, 11/15/2012. Market Size esAmates from Gartner.
Building the #1 Enterprise Cloud!
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§ Trusted enterprise brand and partner
§ Corporate IT managers prefer Microso>
§ Incumbent Advantage § Enterprise Agreements § #Winning
Office 365 Facts!
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Office is not Windows! § Office does not need Windows to thrive.
§ Ubiquitous and familiar around the world. 750¹ million users worldwide.
§ Office 365 plaOorm strategy has successfully protected the crown jewel.
§ Improved revenue and margin opportunity in the cloud.
1Source: Steve Ballmer, Worldwide Partner Conference 2011
Office 365 Facts!
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Case Study: ValueAct Capital § 30 users § 4 Year upgrade cycle
Win-‐Win
§ Less reason to consider Google § Cost savings for us § Easier to deploy latest version § Revenue upli> to Microso> (20%) § SAckier relaAonship for future products
§ Combat piracy (42% of all so>ware was obtained through piracy in 2011 according to the BSA1)
§ New use cases (e.g. email for non-‐knowledge workers)
With Addi>onal Upside:
Annual Cost Per User:
$100
$150
$150
Transac>onal Office 365
$16 $6 $6 $25
$153 Server Hardware
Windows Server 2008R2
Exchange Server 2010
Exchange CALs
Office 2013
$128
12011 BSA Global So>ware Piracy Study, May 2012
Source: ValueAct Capital PresentaAon
Office 365 Small Business Premium
Future of Microsoft Device Strategy!
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Windows + Android Hybrids § Game Changer § One Device, Dual Boot § Most producAve § Most choice § Highest Value § Enterprise Demand
Summary!
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§ Microso> is a dominant and growing global enterprise technology company which has adjusted its strategy with modern ideas, innovaAon & leadership.
§ The new “One Microso>” is well on its way to re-‐emerging as the largest market capitalizaAon company in the years ahead.
About Longboard!
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An alterna>ve approach to naviga>ng the investment ocean Longboard is an asset management firm specializing in trend following strategies. The firm’s principals have been invesAng in and researching trend following strategies since the late 1990s. We manage both private investment funds and mutual funds applying our trend following investment style.
“Trends come like a series of ocean waves, bringing the high Ade when things are good and, as condiAons recede, the low Ade appears. These trends come unexpectedly, unpredictably, and they have to be weathered with temperance, poise, and paAence-‐ good or bad.” Jesse Livermore, Reminiscences of a Stock Operator
Contact Us!
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To learn more about Longboard, connect with us at:
info@longboard-‐am.com 602.910.6961 2355 East Camelback Road, Suite 750 Phoenix, Arizona 85016 www.longboardmutualfunds.com www.longboard-‐am.com