Daniel, your analysis is thorough, but as noted, you should fill in some of your guestimates regarding cash flow via a chat with Gary Rhea, Versant's CFO. My personal opinion is that the Company is managing the cash flow to the best of its ability given the level of sales and balance sheet options. And as stated earlier, I expect the cash flow to improve sequentially as Versant reports stronger top line numbers.
Regarding the sequential decline in revenue (Q2-Q3), Versant is fairly leveraged to Europe and derives a fair amount of sales from that region. Europe essentially closes down in August as workers take "holiday", thereby causing a "weak" quarter for those so leveraged. I'm looking for good sequential growth this quarter though, so we'll see.
Regarding valuations. I would not evaluate or try to value a software company on cash flow -- unless I was short the stock. If the Cowen analyst is correct about next year ($.30 earnings), I think a 30-40x multiple on that number is reasonable given the growth rate it implies and the multiples in the software industry. This would indicate a $10-$12 share price. But, this Company is addressing some very large markets (ecommerce, middle-tier applications, portal infrastructure, etc.) so I think it could easily trade on expectations a year from now, which could be quite impressive. But I'm not here to hype the stock, simply to explain a framework for future valuation.
I guess the bottom line is that I look out a year from now and see the possibilities, and if I'm correct, some of the financial concerns you have become greatly diminished with strong top line growth. I suspect that therein lies our differences, you don't think this Company has a good future and will not be able to grow revenue in a meaningful way, whereas I think it has a bright future that is very exciting. But that's what makes a market and that's why there are buyers and sellers everyday. Thanks for the good discussion. |
