I believe that your analysis of WIND’s revenue figures is correct, and you are right in suggesting that it has been noticed by investors and analysts alike. I felt during this quarter’s analyst conference call that Ron Abelmann was extremely confident in WIND’s ability to continue revenue growth in the high 40% range.
To put this growth in perspective, also confirming your observation that WIND disappointed the Street during its coming out year: FY 1994 the first after IPO, saw revenue grow 9% (execution problems for WIND, but also not a good year for INTS or MWAR); FY 1995 grew revenues about 17%; FY 1996 grew revenues about 37%. FY 1997 is proving that not only is high revenue growth sustainable, but actual top line growth should achieve sustainable high-forties, low-fifties percentage rates of growth.
Since WIND is not a better mouse-trap company, but one with a product that is on the leading edge of a paradigm shift in computing, and one that lends itself to franchise, the top-line revenue growth is the primary foundation of the intrinsic value of the stock. Not that earnings are shabby either. Earnings growth should continue to exceed revenue growth substantially, which is expected for any healthy software company.
Ron also made it absolutely clear during the conference call that, until WIND achieves a solid franchise, do not expect to see operating margins greater than 30%. They must spend money to grow the business, not rest on their laurels. Ron had said this before, but this time it took on more meaning because it was clear to everyone that greater than 30% operating margins could be obtained in short order. Consequently, I have changed my model to constrain operating margin, attempting to stay at 30% (even in deference to Ron, this becomes difficult around the turn of the Century as run-time license revenues ramp up). You would be correct if you sensed that I strongly encourage this policy. This is the time to grow a world class business, not split an extra dollar or two between IRS and stockholders - not that either will have to suffer much anyway.
All in all, the 2nd quarter was extremely strong, not just for beating the Street on both revenues and earnings, but for the confirmation it provided that high-growth is sustainable.
Allen, |
