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Technology Stocks : Global Crossing - GX (formerly GBLX)
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To: MangoBoy who wrote (3927)1/11/2000 7:23:00 PM
From: Robert Sheldon  Read Replies (3) of 15615
 
GLOBAL CENTERS – Keep the valuation guidance simple.

We I guess it is time to get back to justify why I think GBLX is ridiculously cheap rather than speculating on its future partners . . . :-)

I have selected two companies that should be range measures by which to evaluate Global Center (GC) when it is spun off. EXDS focuses on larger business markets while VRIO focuses on the small and mid size business markets. I have settled on evaluating these companies by market cap per square foot of space available for operations and by price to gross sales. You can draw your own conclusions.

First a little about the dynamics of the business:

Based on various sources (as well as other analyst reports) the cost of building data centers is “approximately” $300 per square foot. When filled to capacity these same data centers can see lease rates in excess of $900 per square foot per year depending on bundled services, service levels and other items (hint: are they permanently connected to a network, or are the lines leased?). These sure are nice metrics . . . that comes out to a minimum 3:1 payback on invested capital. Of course there are minimal expenses involved with keeping the centers running to account for, but we are going to keep this simple for now (until we have hard numbers when GC starts to report).

Square footage engaged expected by Q4,1999 reporting.

VRIO 200,000
GC 600,000
EXDS 1,500,000

Now lets look at “market cap per square foot of space available for operations”

VRIO $23,250 (Actual)
EXDS $11,800 (Actual)
GC market cap. range estimate $7.08BB to $13.95BB

Next look at “price to gross sales”

VRIO 20X
EXDS 105X
GC range estimate* $10.8BB to $56.7BB
*Based on $540MM in revenues

I'm willing to bet that GC should be valued significantly higher than the ~$10BB the low end numbers above indicate.

All this and GBLX trades at a significant discount (30% to 60% as a multiple of revenues) to competitors such as COLTY that do not have the comprehensive network, services, or anything else for that matter that GBLX has.

Anyway this is a quick and dirty way I'm looking at GC.
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