I was having a family meet-up at a pub when VMware was mentioned to me as a company to look at. It’s one of those which is fairly boring and difficult for most of us to understand as a micro level but I might be able to add to something.

For full disclosure I am not an IT expert, and do not plan to buy this share immediately, its more food for thought and is on the watch list.

What does it do? This is an 11 year old Child explantation as thats what I understand..

Its an IT company that helps servers run efficiently. Thats it. It does this using some fancy software so when lots of servers “computer brains” are connected it has this software application that tells that group of servers how to run in the best way possible. 

So why does that matter? The company sells this software to lots of different server hardware companies including Dell, which has an 80% stake in  VMware. This software is very sellable, and creates a strong business moat with repeat customers, with new updates which are sold repeatedly and along with this comes high margin servicing agreements for the servers themselves too. 

Who buys this apart from Dell?- Until VMware got taken over by Dell one of its customers running this software was Apple, another current customer is AWS. The general trend of networks and demand for servers is growing and therefore VMware have a large and growing market where it can be established as one of the dominant players. The company has an interesting and hard to compete against business model where it can continually have an almost guaranteed revenue which will grow with new business. 

Growth prospects

Its last quarter growth  revenue grew 9% which is not earth shattering, but its the subscription model that is growing at a high rate of 29% year on year for Q1 that I find enticing. There are other growth metrics that I can list but I don’t that would add much here. There will new more products, more fancy marketing from the business but the core is increasingly simple, sell the service to maintain a subscription based model for customers to use their software. Then update the software every so often to make customers into cash machines. It has around $5billion in free cash according stockopedia. 

Future Outlook,

Dell bought VMWare third hand by purchasing…

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