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Technology Stocks : How high will Microsoft fly?
MSFT 478.53-1.0%Dec 12 9:30 AM EST
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To: Reginald Middleton who wrote (283)10/18/1996 2:48:00 PM
From: Hardly B. Solipsist   of 74651
 
> 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).

It isn't so much a matter of whether they pay them at any given
time, but whether a software company ever will. If you hold the
stock forever and the company never pays dividends and then goes
out of business, you got nothing for your money.

> 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.

But if a given class of company always invests all their cash in
the business and then goes out of business in 20 years without
having paid a dividend, I think that a proper valuation of that
kind of company would discount the cash rather heavily.

> As for assets, in MSFT's case:
> ...

I don't dispute that MSFT is worth a lot of money. Yet another
asset which they have is the increasingly impressive quality of
their engineers. As a friend of mine put it, "That big sucking
noise you hear is MicroSoft [drawing a lot of the best people out
of the valley]."

My original question was, does the "classical Finance model" for
valuing a company apply to the software business? The responses
have so far been of the form "Here's how to value MSFT", which I
find useful, but they don't quite answer my question.
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