Gregg wrote: "It is most useful to separate psychology from quantitative reality."
Quantitatively, how is GSTRF a good long today at $8.25/sh ($2.4 billion market cap. w/ 290M fully diluted shares outstanding)?
Quantitatively, and conservatively, could we agree on the following situation:
$200 per sub per year
(i.e., assume: $0.40/minute x 40 minutes/month x 3 months/quarter x 4 quarter/year)
Burn-rate of $500M per year
2.5M subs are needed for net break even. ($500M/$200)
Now, let's assume the project ramps quickly to 4 million subs four years from today.
So, with 4 million subs, operating profit will be approx $200M net after-tax ((4M-2.5M) * $200 * (1 - 35% tax)).
Assume the valuation of tech stocks are more rational four years from today, and the market provides GSTRF with a p/e of 30, then the market cap will be $6 billion (btw, this works out to $1500 per sub).
The market cap today is $2.4 billion.
Knowing that 4M subs four years out is a *hugely* optimistic assumption given today's rollout/cash-flow situation; quantitatively, and conservatively, how is GSTRF a good long today at $8.25/sh (or $2.4 billion market cap)?
Also, quantitatively, how should we view the down-side (before looking up, as I have tried to do above)?
Is there another way to do the math?, to change my assumptions?, or to look at the situation from another prospective?
(Above, I assumed Moore's Law will march forward and that handset prices and size will be cut in half 2 years from today. I also assume MOU per month will go up from today's 40, but that price-per-minute charged will also decline proportionally. Therefore, the $200 per sub per year figure is held at current levels.) |
