I was simply trying to be polite, in excusing myself from straying off of the topic. AS far as I'm concerned any topic relevant to valuation is relevant to "How high MSFT will go". If others disagree I'm sure they will let us know.
One other point:
"First, is it reasonable to suppose that a software
company has any "intrinsic" value? Any that I have ever worked
at don't pay dividends, and their hard assets are fairly
negligible (at least compared to their market valuation). "
Dividends are simply a way of funneling cash flow out of the company and to investors (as are the income streams form revenue sharing notes). A theoretical reason why dividends are given a priority in some investment circles is that:
1.) they provide current income to the investor.
2.) they relieve the investor of the worry of the company's management succumbing to reinvestment risk (inefficiently investing cash flows).
Thus one of the important factors of picking a company with superior mgmt. (the others are obvious). Bill Gates runs a growth company, therefore academically he needs all possible cash flows for reinvestment for growth. Realistically, with $7 billion of cash on hand, this may not be true, but he does feel he can get a better return on cash than his investors, hence he reinvests all cash flows or keeps them as retained earnings (for a rainy day? he foresaw the paradigm shift and made sure he was prespared for ir).
As for why I am doing all of this typing, Cash is Cash is Cash. Remember that simply because cash flows are not paid out as dividends does not mean that they disappear. You must recognize the value you are looking for regardless of where you may find it (ex. reinvestment in R&D is an alternative to dividend payout, which can "intrinsically" - using your terminology - increase the value of the company)
As for assets, in MSFT's case:
1.) $7 billion in cash (which, to put it in perspective, throws off more in annual income than I optimistically predict NSCP to make in gross revenues for the year)
2.) It's monopolistic stature and proprietary lock in several different software "sectors" - productivity suites, OS', and possibly Wide Area Networking (the WWW)? Which allows it to reletively inexpensively and incrementally encroach upon other software "sectors" such as RDBMS, WWW, Enterprise computing, etc. (a source of goodwill on a balance sheet)
Granted these "assets" are not the same as you typical widget manufacturer, but they are assets nonetheless. Investment banks and brockerage houses are similarly ambiguous in valuation, with peculiar inherent risks and relatively non-traditional assets. |
