Monday, October 23, 2006

Microsoft or Google?

A $1000 investment in MSFT in 1986 would have been valued $355,375.00 today!!!!

If you have to invest $1,000 today for your retirement, and the only choices you have are MSFT or GOOG, do you still go with MSFT? Let’s look closely at the fundamentals of these two stocks.

MSFT:
Current Market Capital: $238.45B
2006 Revenue $ 44.28B
2006 Gross Profit $ 36.63B
2006 Net Income $ 12.60B
Cash Flow $ 14.40B
Qtr revenue growth 16.20%

GOOG:
Current Market Capital: $139.91B
2006 Revenue $ 8.21B
2006 Gross Profit $ 3.56B
2006 Net Income $ 2.07B
Cash Flow $ 2.97B
Qtr revenue growth 77.40%

MSFT History:
3/13/86 Microsoft goes public on NASDAQ: its IPO raises $61 million as MSFT rises from $21 to $28 on opening day, it was 11 years old.

1986 Revenue $197.5 million; 1,153 employees
1990 Revenue $1.183 billion; 5,635 employees
1994 Revenue $4.649 billion; 15,257 employees
1998 Revenue $14.480 billion; 27,320 employees
2002 Revenue $28.37 billion;
2004 Revenue $36.835 billion;
2006 Revenue $44.280 billion; 71,553 employees

GOOG History:
08/18/2004 Google goes public on NASDAQ: its IPO raises $1.2B as GOOG rises from $85 to $100 on opening day, it was 6 years old.

2003 Revenue $1.45 billion;
2004 Revenue $3.19 billion; 2,668 employees
2005 Revenue $6.14 billion; 4,989 employees
2006 Revenue $9 billion; 9,378 employees

Summary:
MSFT business model relies mainly on software sales with its #1 revenue generator and flagship product “Office”. Even though MSFT seems to be big, a slow to react company, it is in reality a group of hundreds of small companies working as a startup giving it an incredible ability to fight any competitors, IBM pc division, Lotus, Netscape, AOL and Real Networks are some companies who tried to get in its way and learned their lesson the hard way. MSFT is not an innovative company, it is an execution company. They don’t acquire businesses, they acquire technology. Their gross profit is provocative, almost 75% of their revenues and they never had a massive layoff.

GOOG business model relies on a cash cow of 400,000 companies pouring money to win clicks from Google web site and its affiliates. Even though Google sells search appliances and Google earth software for corporate, their main revenue is coming from ads and not from products. The revenues declared by Google, quarter after quarter are insane and not following the same pattern as rival Yahoo or MSN. Google masters the simple idea it is exploiting and put technology to it is side to turn the web into a cash machine with a flawless execution.

If I have to answer the question at the beginning of the post, I will put $500 on each and be sure that in 20 years, you will be sitting on a nice nest.

PS: Microsoft employees have the biggest ratio of millionaires per 100 employees in fortune 500 companies.

**Income statements and stock info source: Yahoo Financials and sec.gov

5 comments:

el greco said...

Meilleures pensées en ce jour de fête...

Zied said...

you knw that a 500 dollars will not buy more than 1 share from google. and in 20 years, i don't thik it will grow as much as you think, because it's already established. I mean, it not going to sky rocket in 20 years. Maybe 5 times its present value?

ancien combattant said...

Elli Yehseb Wahdou Yofdhollou :)

(just kidding, happy blessed Eid)

samsoum said...

@el_greco. Merci, malheureusement pour moi, c'est un jour ou plutot une nuit comme les autres :-(
@zied: on verra dans 20 ans inchallah :-)
@AC: lol, winti billemthel

aymen said...

@samsoum:
I think google is the best choice when we see this comparaison between microsoft's stock and google's one :
http://research.investopedia.com/chart.aspx?Start=20011023&End=20061023&cType=2&Scale=2&s=GOOG&s2=msft

but every rise has a limit,no?