All RAZF longs have a look at XPDR
Look at this piece of news and try to make sense.
If RAZF is undervalued what the heck is XPDR..
cbs.marketwatch.com.
"E-consultant consolidation
Shares of USWeb/CKS (USWB: news, msgs) added another 1 1/4, or 2.9 percent, to 44 5/16. Razorfish (RAZF: news, msgs), a company that Lehman Brothers analyst Karl Keirstard noted as relatively undervalued, saw shares run up another 9.5 percent, after jumping 7 percent Thursday.
Among the 12 Net consulting pure plays that Keirstead tracks, Scient (SCNT: news, msgs) and Viant (VIAN: news, msgs) are his favorites. But the multiples suggest that these two do trade at a healthy premium, with both sporting price-to-2000 sales multiples of 30 to 35. On average, the group trades at an average price-to-2000-sales multiple of 18."
Analysis: XPDR compared to peers (VIAN,SCNT,RAZF,PXCM)
### Here's the summary of a valuation comparison of XPDR vs. its peers:
(I've included a more detailed version of this analysis below.)
Bottom line:
XPDR "fair value" = $78 to $174/share when compared to its peers.
The market tends to go a long ways toward closing these kinds of
valuation gaps in the 3-6 months following an IPO.
Look at each company's market cap as a percentage of their revenue:
XPDR MarketCap = 9.8 times estimated full 1999 revenue (7 months rev. prorated over 12 months)
SCNT MarketCap = 66 times estimated full 1999 revenue (9 months rev. prorated over 12 months)
RAZF MarketCap = 60 times 1999 revenue (nine months rev. prorated over 12 months)
VIAN MarketCap = 44 times 1999 revenue (nine months rev. prorated over 12 months)
PXCM MarketCap = 28 times 1999 revenue (nine months rev. prorated over 12 months),
This means there is a relative market valuation gap between XPDR and the rest
by a factor of 3 to 6.5. That is, XPDR's market-cap and stock price could grow
between 3 and 6.5 fold (e.g. to a price between $78 and $174/share) and still be a
good deal compared to PXCM, VIAN, RAZF, and especially SCNT. And since XPDR's
revenue, customer base, and other fundamentals are at the top of the pack, it
would make sense to value it at the upper end of that range -- e.g. well above
$150/share. That's a big valuation gap. ==> Points to XPDR climbing above $150/share.
The market tends to close these gaps. Not necessarily in the first month. When
you look at these peers, and other leaders in the broader B2B space, you see
pretty big runs in the first few weeks (with plenty of volatility, and people
getting scared and selling too early on 10%-20% pullbacks), sometimes followed
by a bigger pull back just after the quiet period (a "sell on the news" herd
mentality), followed by the REAL runs in the 3-6 months after the quiet period.
Also note that all of these other companies are growing quickly. So the
upper bounds are moving targets. In a month, we might be talking about
a "fair comparison" value for XPDR of $100-$200/share (vs. todays $78-$174).
Note on growth rates: All of these companies are growing tremendously fast.
XPDR is about twice as large already and is a year ahead on the growth curve
compared to most of the above companies (as you can see from its superior
revenue below), even though it just went public. As described in more detail
below, when these kinds of companies are in their first 18 months of the growth
curve, their growth rates are huge -- XPDR grew its revenue almost 700% in the
1997-1998 span, and "settled down" to 100% for 1998-1999. Most the others above
are still in their first 18 months of hypergrowth, so you need to compare their
1998-1999 growth rates to XPDR's 1997-1998 growth rate to get something
approaching an apples-to-apples growth-rate comparison -- and XPDR comes out
ahead again.
BTW: Let's not get silly about the Expedia vs. XPedior trademark "suit".
If I was Expedia I'd want XPedior to change their name too -- sounds too
similar. But the companies have nothing to do with one another, and XPedior
has very little invested in the XPedior name (which I don't like much anyway,
and which was just the name of a Metamor unit ). XPedior's customers (see list
below) know them through their parent company and through their best-of-breed
software and services. How many of us knew XPedior's name before researching
this IPO? (One of MS' press release suggested that some of Expedia's consumers
-- people shopping for cheap airline tickets -- might get confused and
accidentally purchase multi-million dollar B2B software solutions from XPedior
when they meant to buy a $200 airline ticket from Expedia! Yeah right. That's
just MS attorneys being ridiculous again: The PR writer probably parotted an
MS attorney who recited an essential elements of trademark infringement
allegations -- potential confusion among mutual customers. Obviously, that's
not really an issue in the real world. It looks like XPedior will simply
change the name, with no harm done to either party. Case closed.
### Here's a more detailed valuation analysis:
XPedior Inc. (Nasdaq: XPDR)
A leading provider of eBusiness solutions to Global 2000 companies and emerging Internet businesses.
Major Customers include:
GTE, Citibank
Hewlett-Packard
MCI/WorldCom
Pepsico
Safeway
Sears
American Medical Association
among others.
# Shares = 50,000,000 shares
Float = 8,535,000 shares
(Float = # shares not locked up by company, insider, and pre-IPO investors.)
Market cap at close 12/16/99 = $1.3 Billion (i.e. $26/share x 50 Million shares).
1999 First seven months revenue = $77.2 Million (That's for just over 1/2 of 1999 fiscal year!)
with a 1999 seven month PROFIT of $327 Thousand.
1998 FULL year revenue = $100.5 Million (over 600% increase over 1997)
with a 1998 loss of $30 Million -- see details below.
1997 revenue = $12.6 Million from March inception through year end
with a 1997 loss of $1.357 Million
Here are comparisons with some peers (all numbers are as of close 12/16/99):
--- XPDR again (so we can compare to others below) ---
Market cap = $1.3 Billion ($26/share x 50 Million shares [8.535 M float])
For the seven months ended 7/31/99, revenues totalled $77.2 million,
up from approx $35 million in first seven months of 1998.
PROFIT for those seven months totalled $327 Thousand, up from approx $16 M loss.
(1998 numbers are estimates with Kinderhook acquisition included. See notes below.)
MarketCap = 9.8 times estimated full 1999 revenue (7 months rev. prorated over 12 months)
--- SCNT ---
Market cap = $6.22 Billion ($88 1/2 / share x 70.3M shares [23.2 M float])
For the six months ended 9/30/99, revenues totalled $47.2 million,
up from $5 million. Net loss totalled $14.2 million, up from $1.8 million.
MarketCap = 66 times estimated full 1999 revenue (9 months rev. prorated over 12 months)
--- RAZF ---
Market cap = $3.77 Billion ($86 7/8 / share x 43.4 Million shares [with 21 M float])
For the nine months ended 9/30/99, revenues totalled $46.5 million,
up from $9.1 million. Net income totalled $2.1 million vs. a
loss of $73 thousand.
MarketCap = 60 times 1999 revenue (nine months rev. prorated over 12 months),
--- VIAN ---
Market cap = $2.2 Billion ($98/share x 22.5 Million shares [4 M float, but lock up ending soon])
For the nine months ended 10/1/99, revenues totalled $37.6 million,
up from $13.9 million. Net loss fell 30% to $2.3 million.
MarketCap = 44 times 1999 revenue (nine months rev. prorated over 12 months),
--- PXCM ---
Market cap = $2.0 Billion ($76 9/16 / 26.1 Million shares [4.5 M float, lock up ending soon [or ended?]])
For the nine months ended 9/99, revenues rose 71% to $53.1 million.
Net loss applicable to Common fell 87% to $2.7 million.
MarketCap = 28 times 1999 revenue (nine months rev. prorated over 12 months),
All of these are great looking companies, growing tremendously
fast. But XPDR is about twice as large already (in terms of revenue),
has much higher earnings, and is generally a year ahead on the growth curve,
even though it just went public.
A note about GROWTH RATES: Notice that XPDR grew at almost 700% from
1997 to 1998, and the growth "slowed" to about 120% from 1998 to 1999 --
that's just a sign that it's further along the growth curve. No one keeps up
700% growth after the first 18 months or so. Most of the other companies
above went public earlier but geared up operations later -- so their most
rapid growth is occuring in the 1998-1999 span rather, but they're expected
to settle down (if you can call 100% growth) over the 1999-2000 span.
Most the others above are still in their early stages of growth, so you need
to compare their 1998-1999 growth rates to XPDR's 1997-1998 growth rate to
get something approaching an apples-to-apples growth-rate comparison -- and
XPDR comes out ahead again.
The key figure above, of course, is the last line in each section:
MarketCap as a multiple of revenue. XPDR's is 9.8. The rest are
28, 44, and 60. That means there is a relative market valuation gap
between XPDR and the rest by a factor of 3 to 6. That is, XPDR's market-cap
and stock price could grow between three and six fold (e.g. price of
$78 to $156/share) and still be a good deal compared to PXCM, VIAN,
RAZF, and especially SCNT. (To be "fairly valued" with respect to SCNT,
XPDR would have to grow 6.7 fold -- i.e. to $174/share.)
A note about XPedior's Kinderhook acquisition and revenue/earnings number:
-- The 1999 and 1998 XPDR numbers include numbers attributable to the
Kinderhook Systems acquisition. Without the Kinderhook numbers,
1999 first seven month revenue = $69.9 Million, with a $327K Profit,
and 1998 full year revenue = $72.3 Million, with a $530K Profit.
This means XPedior was profitable in 1998 and 1999 without the
Kinderhook contribution; they assumed Kinderhook's big 1998 loss ($30M+);
and they have successfully managed the merger so that in 1999 they are
benefiting from the added revenue WITHOUT an assoicated big loss in 1999.
(1998 loss $30Million has become a small 1999 Profit.) Doing this
in one year is very impressive, IMO.
You can find XPedior's financials on the following web page:
ostman.com. |
