<<"The U.S. Web-hosting business was worth $1.7 billion US last year, according to research firm International Corp., and is expected by 2004 to grow to a $17.6 billion market.">>
Another company you may want to consider in your review is SunGard systems (NYSE: SDS). SDS has a relatively low profile but provides a variety of data center, web hosting, transaction processing, and network management services primarily to the financial industries. This year SDS will process more than 70% of the trades on NASDAQ and will continue to benefit from the long term growth of stock market trading.
In Gorilla Game terms, SDS has bundled their products into a series of solutions which create a transaction processing architecture with both enabling technology and application components. Because financial customers are reticent to trust just anyone with their mission critical transactions, SDS has created high barriers to entry and high switching costs.
On the financial side, SDS has a diverse set of profitable revenue streams and generated TTM revenues > $1.5B, net income > $170M, net profit margin > 12%, and Y/Y growth > 20%. (Interesting to note that SDS had revenues almost equal to the IDC estimate for the total web hosting market this year.) Near term logical extensions to their business include moving beyond the traditional financial industry into the developing energy trading business and to B2B exchanges which need to process financial transactions.
I'm just beginning my own DD and have some concerns (can they move beyond their niche, can management play the Gorilla Game, etc.) but they appear to be a reasonably valued company in a space typified by high valuations, uncertain revenue streams, and low barriers to entry.
If nothing else, it's worth studying the SDS business model today since it represents what those other companies are aspiring to be when they grow up. <vbg> |
