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VMware

NYSE:VMW
Snowflake Description

Excellent balance sheet with reasonable growth potential.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
VMW
NYSE
$41B
Market Cap
Systems Software
Company description

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. More info.


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VMware is covered by less than 3 analysts.
SHARE PRICE
3 Month History
VMW
Industry
5yr Volatility vs Market

Value

 Is VMware undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of VMware to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of VMware is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for VMware's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are VMware's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Software industry average.
  • Overvalued based on earnings compared to the overall market.
Price based on expected Growth
Does VMware's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on VMware's assets?
  • Good value based on assets compared to the Software industry average.
X
Value checks
We assess VMware's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. VMware has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (14.78%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for VMware is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$9,167

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $2,852 × (1 + 2.3%) ÷ (10.13% – 2.3%)

Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
$37,429

Present value of terminal value:
$23,108

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($32,274 / 410)

Value per share:
$78.78

Current discount (share price of $99.93): -27%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.13% = 2.33% + (1.016 * 7.67%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

1.016 = 0.991 (1 + (1- 30%) (3.66%))

Levered Beta used in calculation = 1.016



Assumptions
  1. The risk free rate of 2.33% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is VMware expected to perform in the next 1 to 3 years based on estimates from 0 analysts?

  • Future performance analysis is based on estimates from less than 3 analysts.
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
3 year growth
35%
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is VMware expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

Are VMware's annual earnings growth expected to exceed 3.4% over the next 3 years?

  • After 1 year
  • After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Super high growth metrics x1.5?

Which of the these is expected to increase by over 50% in 2 year's time?

  • Revenue
  • Cash flow
  • Profit
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
  • VMware is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

Improvement & Relative to industry
  • Expected to be less than the Software industry average.
  • An improvement in VMware's performance (ROE) is expected over the next 3 years.
X
Future performance checks
We assess VMware's future performance by looking at:
  1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
  2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
  3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
  4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
  5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
VMware has a total score of 4/6, see the detailed checks below.

Note: If no +3 year data is available, +2.5 year data may be used.

Note 2: We use GAAP per Share in all our calculations.

Full details on the Future part of the Simply Wall St company analysis model.

Past Performance

 How has VMware performed over the past 5 years?

The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare VMware's growth in the last year to its industry (Software).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
  • VMware's earnings growth has not matched the industry average in the past year.
  • VMware's 1 year earnings growth exceeds its 5 year annual average (19.9% vs 12.8%).
  • VMware has improved earnings in the past 5 years.
Profit History
VMware's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
  • Poor return on shareholders funds (ROE) last year.
  • VMware performed worse than the Software industry average based on return on assets (ROA) last year.
  • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
X
Past performance checks
We assess VMware's performance over the past 5 years by checking for:
  1. Has earnings per share (EPS) increased in past 5 years? (1 check)
  2. Has the EPS growth in the last year exceeded that of the Software industry? (1 check)
  3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
  4. Is the Return on Equity (ROE) higher than 20%? (1 check)
  5. Is the Return on Assets (ROA) above industry average? (1 check)
  6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
VMware has a total score of 3/6, see the detailed checks below.

Note: We use GAAP Earnings per Share in all our calculations.

Full details on the Past part of the Simply Wall St company analysis model.

Health

 How is VMware's financial health and their level of debt?

A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

The boxes below represent the relative size of what makes up VMware's finances.

The net worth of a company is the difference between its assets and liabilities.
Net Worth
  • VMware is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
  • VMware's cash and other short term assets cover its long term commitments.
Balance sheet
This treemap shows a more detailed breakdown of VMware's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Assets
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
  • Low level of unsold assets
  • Total debt is covered by short term assets.
Historical Debt
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
  • The level of debt (19%) compared to net worth is satisfactory (less than 40%).
  • The level of debt compared to net worth has increased over the past 5 years (9% vs 19% today).
  • Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
  • Company earns more interest than it pays.
X
Financial health checks
We assess VMware's financial health by checking for:
  1. Are short term assets greater than short term liabilities? (1 check)
  2. Are short term assets greater than long term liabilities? (1 check)
  3. Has the debt to equity ratio increased in the past 5 years? (1 check)
  4. Is the debt to equity ratio over 40%? (1 check)
  5. Is the debt covered by short term assets? (1 check)
  6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
  7. VMware has a total score of 5/6, see the detailed checks below.


Full details on the Health part of the Simply Wall St company analysis model.

Dividends

 What is VMware's current dividend yield, its reliability and sustainability?

Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Dividend payments
0%
Current annual income from VMware dividends.
If you bought $2,000 of VMware shares you are expected to receive $0 in your first year as a dividend.
Dividend Amount
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
  • Paying below low risk savings rate. (2.25%)
  • Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

We also check to see if the dividend has increased in the past 10 years.
  • Not paying a notable dividend.
  • Not paying a notable dividend.
Current Payout to shareholders
What portion of VMware's earnings are paid to the shareholders as a dividend.
  • Not paying a notable dividend.
Future Payout to shareholders
  • Insufficient estimate data to determine if a dividend will be paid in 3 years.
X
Income/ dividend checks
We assess VMware's dividend by checking for:
  1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
  2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
  3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
  4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
  5. How sustainable is the dividend, can VMware afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
  6. VMware has a total score of 0/6, see the detailed checks below.


Full details on the Dividends part of the Simply Wall St company analysis model.

Management

 What is the CEO of VMware's salary, the management and board of directors tenure and is there insider trading?

Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
CEO
Pat Gelsinger, image provided by Google.
Pat Gelsinger
COMPENSATION$14,841,374
AGE56
CEO Bio

Mr. Patrick P. Gelsinger, also known as Pat, has been the Chief Executive Officer of VMware, Inc. since September 1, 2012. Mr. Gelsinger has more than 30 years of experience in general management and product development positions. He served as the President, Chief Operating Officer and President of Information Infrastructure Product at VMware, Inc. since September 2009. He served as a Technical Advisor of Empire Ventures, Inc. He served as General Manager of the Digital Enterprise Group and Senior Vice President of Intel Corporation since September 2005 and from January 2005 to September 2009 respectively. He served as Co-general Manager and General Manager of the Digital Enterprise Group of Intel Corporation since January 2005 and May 2005 respectively. He joined Intel in 1979, held a variety of research, development and general management positions at Intel Corporation, including responsibility for the Intel 486(TM) and Pentium(R) Pro processor families and management of Intel's Desktop Products Group. He served as Group Vice President of Intel. He served as Head of Intel Labs. Mr. Gelsinger led Intel's Corporate Technology Group, which encompasses many Intel research activities, including leading Intel Labs and Intel Research and driving industry alignment with these technologies and initiatives. He served as the Chief Technology Officer of the Intel Architecture Group. He led the Desktop Products Group, where he was responsible for Intel's desktop processors, chipsets and motherboards for consumer and commercial OEM customers as well as Intel's desktop technology initiatives and the Intel Developer Forum. From 1992 to 1996, he was instrumental in defining and delivering the Intel® ProShare® video conferencing and Internet communications product line. He served as Director of the Platform Architecture Group, Design Manager and Chief Architect of the original i486™ microprocessor, manager of CAD methodologies and key contributor on the original i386™ and i286 chip design teams. He has been a Director of VMware, Inc. since September 1, 2012. He served as a Director of TriVium Systems, Inc. He served as a Director of IP Dynamics Inc. He serves as the Chairman of Trustees at William Jessup University. Mr. Gelsinger holds six patents and six applications in the areas of VLSI design, computer architecture and communications. He has more than 20 publications in these technical fields, including "Programming the 80386," published in 1987 by Sybex Inc. He has received numerous Intel and industry recognition awards. In 2008, he was named a Fellow of the IEEE and awarded an Honorary Doctorate of Letters in 2008 from William Jessup University. Mr. Gelsinger received an associate's degree from Lincoln Technical Institute in 1979, a bachelor's degree from Santa Clara University in 1983, Magna Cum Laude and a master's degree from Stanford University in 1985, all degrees are in Electrical Engineering.

CEO Compensation
  • CEO's compensation has been consistent with company performance over the past year.
  • CEO's compensation appears reasonable.
Management Team Tenure

Average tenure of the VMware management team:

Management tenure
2.4 years
  • The tenure for the VMware management team is about average.
Management Team

Pat Gelsinger

TITLE
CEO & Director
COMPENSATION
$14,841,374
AGE
56

Zane Rowe

TITLE
Chief Financial Officer and Executive Vice President
COMPENSATION
$6,550,868
AGE
46

Raghu Raghuram

TITLE
Chief Operating Officer of Products & Cloud Services
COMPENSATION
$11,945,251
AGE
54

Sanjay Poonen

TITLE
Chief Operating Officer of Customer Operations
COMPENSATION
$12,102,321
AGE
47

Rajiv Ramaswami

TITLE
Chief Operating Officer of Products & Cloud Services
COMPENSATION
$22,936,152
AGE
51

Scott Devine

TITLE
Co-Founder and Principal Engineer
Board of Directors Tenure

Average tenure of the VMware board of directors:

Board tenure
3.9 years
  • The tenure for the VMware board of directors is about average.
Board of Directors

Michael Dell

TITLE
Chairman
COMPENSATION
$0
AGE
52

Pat Gelsinger

TITLE
CEO & Director
COMPENSATION
$14,841,374
AGE
56

Mike Brown

TITLE
Independent Director
COMPENSATION
$374,739
AGE
71

Paul Sagan

TITLE
Lead Director
COMPENSATION
$474,739
AGE
58

Tony Bates

TITLE
Independent Director
COMPENSATION
$439,002
AGE
50

Karen Dykstra

TITLE
Independent Director
COMPENSATION
$420,359
AGE
58
Recent Insider Trading
  • VMware insiders have sold more shares than they have bought in the past 3 months.
Who owns this company?
X
Management checks
We assess VMware's management by checking for:
  1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
  2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
  3. Is the average tenure of the management team less than 2 years? (1 check)
  4. Is the average tenure of the board of directors team less than 3 years? (1 check)
  5. VMware has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


Note: We use the top 6 management executives and board members in our calculations.

Note 2: Insider trading include any internal stakeholders and these transactions.

Full details on the Management part of the Simply Wall St company analysis model.

Company News

Company Info

Description

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. Its virtualization infrastructure solutions includes a suite of products and services designed to deliver a software-defined data center(SDDC), run on industry-standard desktop computers, servers, and mobile devices; and supports a range of operating system and application environments, as well as networking and storage infrastructures. The company offers VMware vSphere, a data center platform, which enables users to deploy hypervisor, a layer of software that resides between the operating system and system hardware to enable compute virtualization; storage and availability products that provide data storage and protection options; network and security products; and management and automation products to manage and automate overarching IT processes involved in provisioning IT services and resources to users from initial infrastructure deployment to retirement. It also provides SDDC suites, including VMware vCloud suite, vSphere with Operations Management, and VMware vRealize suite for building and managing a cloud infrastructure for use with the vSphere platform. In addition, the company offers Cloud Foundation, a SDDC delivery independent platform that can be deployed on-premises or run as-a-service. Further, it provides hybrid cloud computing solutions, such as VMware vCloud Air Network and vCloud Air; and end-user computing solutions that enable customers to securely deliver access to applications and data for their end users from various devices. The company sells its products through distributors, resellers, system vendors, and systems integrators. VMware, Inc. has a strategic alliance with Amazon Web Services to build and deliver an integrated hybrid solution; and a collaboration with Trend Micro Incorporated. The company was incorporated in 1998 and is headquartered in Palo Alto, California. VMware, Inc. is a subsidiary of Dell Technologies Inc.

Details
Name:VMware, Inc.
Ticker:VMW
Exchange:NYSE
Founded:1998
Market Cap:$40,937 million
Website:http://www.vmware.com
Listings
Map

3401 Hillview Avenue, Palo Alto, 94304, United States

Number of employees
Street

Current staff
Staff numbers
18,905
VMware employees.
Industry
Industry:Systems Software
Sector:Software and Services