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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: mtnlady who wrote (17507)2/8/2000 7:08:00 PM
From: Mike Buckley  Read Replies (2) of 54805
 
mtnlady,

I agree with most everything you mention, except ... :)

Siebel is clearly going after margin share now as well. Margins have increased from 10.7% in 98', to 15.4% in 99'

To compensate for the one-time charges related to the Scopus acquisition in 1998, add $15.3 million back into earnings and you get something close to 15% net margins in 1998.

Q4's 16.8% [net margin]

Similarly, my guess is that you forgot to subtract the money made from the sale of USinternetworking stock. I don't remember the details, but I think you'll get much closer to 16% margins in Q4 if not 15%.

Think about it. Lower-margin service revenue is growing almost twice as fast as higher margin lincensing revenue. Yet because so many see what they want to believe, they still come away thinking that Siebel is increasing its net margin to the tune of 50% in only one year. That doesn't make any sense. The explanation is in the one-time accounting events.

The point is that margins have NOT increased tremendously for Siebel as so many people who fail to take into account one-time accounting events believe. If you believe the product is no longer in the tornado, all of your arguments are well worth considering. But don't use increasing margins as the symptom because they simply are not increasing that rapidly.

--Mike Buckley
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