1. Is Microsoft the next Apple?
October 16, 2013
Microsoft Corp. NASDAQ: MSFT
2. Disclosure!
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.
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MicrosoB
stock
increases
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value
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Presenta>on
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MicrosoB
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other
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For Investment Professional Use Only
2
4. Perception vs. Reality!
§ Microso>
currently
suffers
from
a
legacy
percepAon
problem.
§ We
think
Mr.
Market’s
outlook
for
Mr.
So>y
does
not
match
reality.
Reality
MFST
The
MicrosoB
Myth
PercepAon
4
5. 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.
$60
$55
Microsoft: MSFT
?
?
$50
$45
$40
$35
$30
$25
$20
$15
5
6. Why Microsoft?!
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
6
7. Current Market Perception!
§ Microso>
management
has
failed
at
everything
in
the
last
decade
and
Google,
Facebook,
Apple
and
Amazon
are
the
new
technology
leaders.
7
8. Market Perception!
§ Culturally
irrelevant
brand
and
legacy
technology
company
of
the
1990s.
8
9. Market Perception!
§ Android
and
iOS
are
the
technology
OS
standard
of
the
future
and
Windows
is
a
dying
plaOorm
that
will
destroy
the
Microso>
franchise.
9
10. Perception vs. Reality!
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
10
11. Forget PCs, Enterprise is the Story!
MicrosoB
Business
Division
(MBD)
+
Server
&
Tools
(S&T)
CAGR
In
$Bn
$45
$40
$35
$30
$25
$20
$15
$10
$5
0
$42.6
+7.4%
Revenue
$23.9
(54%)
EBIT1
(Margin)
$39.2
$32.1
$33.1
$34.2
+8.0%
$16.9
(53%)
$16.5
(50%)
$17.2
(50%)
$20.9
(53%)
2008
2009
2010
2011
2012
1Excludes
Corporate
Expense
and
2012
aQuanAve
Charge
Source:
Company
Financial
Statements
11
12. Enterprise is 70% of EBIT and Growing! !
MBD
+
S&T
as
Percentage
of
Total
Business
%
EBIT
70%
65%
60%
55%
50%
%
Revenue
2008
2009
2010
2011
2012
These
Businesses
are
now
70%
of
EBIT1
1Excludes
Corporate
Expense
and
2012
aQuanAve
Charge
Source:
Company
Financial
Statements
12
13. Growing Enterprise Businesses!
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.
13
14. Building the #1 Enterprise Cloud!
§ Trusted
enterprise
brand
and
partner
§ Corporate
IT
managers
prefer
Microso>
§ Incumbent
Advantage
§ Enterprise
Agreements
§ #Winning
14
15. Office 365 Facts!
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
15
16. Office 365 Facts!
Win-‐Win
Case
Study:
ValueAct
Capital
§ 30
users
§ 4
Year
upgrade
cycle
§
§
§
§
§
Annual
Cost
Per
User:
$153
Server
Hardware
Windows
Server
2008R2
Exchange
Server
2010
Exchange
CALs
Office
2013
$25
$6
$6
$16
Less
reason
to
consider
Google
Cost
savings
for
us
Easier
to
deploy
latest
version
Revenue
upli>
to
Microso>
(20%)
SAckier
relaAonship
for
future
products
$150
With
Addi>onal
Upside:
$128
$150
$100
Transac>onal
Office
365
Office
365
Small
Business
Premium
§ 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)
12011
BSA
Global
So>ware
Piracy
Study,
May
2012
Source:
ValueAct
Capital
PresentaAon
16
17. Future of Microsoft Device Strategy!
Windows
+
Android
Hybrids
§ Game
Changer
§ One
Device,
Dual
Boot
§ Most
producAve
§ Most
choice
§ Highest
Value
§ Enterprise
Demand
17
18. Summary!
§ 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.
18
19. About Longboard!
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
19
20. Contact Us!
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
20