Re: Quantitative Analysis
Is there another way to do the math?, to change my assumptions?, or to look at the situation from another prospective?
I don't think you should use subs to calculate this, since data will increase relative to voice over time, IMHO and may be a significant percentage of the capacity starting as early as 2nd/3rd Qtr 2001.
How about calculating the share price based on capacity usage? (And yes, this assumes a leap of faith today as to HOW the capacity will be filled).
I will use your numbers for P/E (30), and corporate tax rate (35%). I would note that your P/E of 30 is very conservative for the early stages of the life cycle. There is also a mention in the latest 10-Q that U.S. income taxes are passed through to the partners, so I'm unsure what tax rate should be used here.
I am using $1B per year for operating expenses, which is little more than a WAG at this point (see note below!). At any rate, it would change year to year.
Assumptions:
10B minutes capacity per year and $.45 per minute earned
.274B shares - the latest figure I saw (includes all options if exercised and LP ownership if converted, likely to increase in the future to raise capital)
$1B cost of business expense per year remains a constant year to year (should increase over time)
35% tax rate
30 times P/E remains a constant year to year (should be much higher in early growth phase)
Additional income is ignored (gateway royalties, phone sale royalties, etc.)
Analysis:
Net Income = ((Mins Used * Cost/Min) - Expenses/Year) * (1 - Tax Rate)
Capacity Used Net Income Calculation
10% -.55B = (1B * $.45) - 1B
20% -.1B = (2B * $.45) - 1B
30% .2275B = ((3B * $.45) - 1B) * .65
40% .52B = ((4B * $.45) - 1B) * .65
50% .8125B = ((5B * $.45) - 1B) * .65
60% 1.105B = ((6B * $.45) - 1B) * .65
70% 1.3975B = ((7B * $.45) - 1B) * .65
80% 1.69B = ((8B * $.45) - 1B) * .65
I stopped at 80% since there is an upper limit to just how much capacity can be used in the real world.
Now the share price:
Price Per Share = P/E Multiple * (Earnings / Shares Outstanding)
Capacity Used Share Price Calculation
10% N/A = 30 * (-.55B * .274B)
20% N/A = 30 * (-.1B * .274B)
30% $24.90 = 30 * (.2275B * .274B)
40% $56.93 = 30 * (.52B * .274B)
50% $88.95 = 30 * (.8125B * .274B)
60% $120.98 = 30 * (1.105B * .274B)
70% $153.01 = 30 * (1.3975B * .274B)
80% $185.03 = 30 * (1.69B * .274B)
Warning!! This is an over-simplistic analysis. I am NOT an accountant and I may have missed something important, but it might be useful as a starter for further analysis or if you want to build your own model. Just how helpful this is will depend on all of the unknowns. I think it makes a good case for the the current price of the minutes sold (at least for the G* minutes) and it also indicates that if the capacity is sold, the share price should increase dramatically.
I would appreciate any corrections of mistakes or bad assumptions. |
