My valuation is to get a price range based on a company*s revenue, prospects, projected growth rate, risks and potential long-term profit margin, as well as how the market (over a long period of time) values companies with similar prospects. As with any valuation, it*s highly subjective and with some assumptions. But it does give me a better idea. I have also noticed that the financial market is very inefficient in valuing a technology company within the first year of IPO. It tends get highly overvalued or undervalued based on the publicity and perception rather than the fundamentals. But beyond that initial period, the market valuation gets more efficient.
I believe the financial market will give OTEXF higher valuation when it becomes profitable. For this reason, I also use lower valuation for OTEXF just to match how the financial market works. My personal view is that the profitability does not affect the company*s prospects at all since it is in very sound financial situation. I would prefer them to go after the market share aggressively rather than trying to turn a profit at this stage. With its horizontal marketing approach and direct sales model, I also suspect it will not reach its long-term operation margin within two years.
On the factors you mentioned in your message, most of them seem quiet clear. But what is the direction that management is taking Open Text ? I also have some questions on Open Text which you may be able to help.
It appears to me that Open Text has a product which is capable of making them at least a major software supplier in the document management market, but I have some doubts whether the management and its marketing could take it there. I have seen some of the good things they do: distributors for overseas markets, signing up a few big accounts, expanding the market share with educational institutions, starting to develop retailer. But there are two areas which I concern most.
First question is how they position the product. It seems to me that they are trying to cover all the issues related to document management and for all sizes of companies. Yes, the Livelink product look scapable of doing so. But the problem is that they are stepping on the turf on all the players in the document management market. Wouldn*t they have to keep explaining why their product is better than other products. Will they come out a more crispy marketing message ? It*s not this type of positioning won*t work. I*m concerned about if they have the kind of marketing power required for this type of positioning to work.
The second question is that if they are going to speed up the rate of making partnerships and signing up channels to cut into vertical markets. Without doing so to complement their positioning, they are more likely to stumble and thus making the company a more risky one to invest in than those companies showing the similar promising future. |
