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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Uncle Frank who started this subject	9/30/2000 12:49:12 AM
From: Mike Buckley	Read Replies (1) of 54805

Since I'm the one who initially increased awareness in this folder of Siebel's valuation, I'm going to take a moment to explain why I'm not selling any of my shares. Before I get to the numbers, I need to remind everyone of a very important point made by John Del Vecchio many times recently -- that Siebel's average selling price is rising despite that the percentage of total revenue in the lower-priced mid-market is dramatically increasing. Appreciating that lends at least a little credence to the numbers you'll see below. Let's use as a point of departure AMR's thinking that the CRM market will be about $21 billion in 2004. Also assume it grows roughly 30% each year through the end of the decade. That puts CRM revenue at about $75 billion in 2009. Most thinking is that Siebel's current market share is about 20%. I think it's going to be roughly 25% to 30% in 2009 because it's still in its first tornado and now enjoying the winds of the mid-market tornado. The value chain gets stronger almost monthly if not weekly. Assuming a 25% share of a $75 billion market, Siebel's revenue in 2009 will be $19 billion. Assume a 30% share and the revenue will be $22 billion. Average the two and call it $20 billion 'cause I like round numbers. Today's PSR is about 35. Assume it shrinks to something around 15 or 20 by the time we get to 2009. At a PSR of 15, the market cap will be $300 billion. Using a PSR of 20 the market cap will be $400 billion. (Those who want to refine the numbers more will also want to factor in some guesses about stock dilution over the next nine years.) Today's market cap is about $50 billion. If the above assumptions are reasonable, the stock can reasonably grow six- or eight-fold by the end of 2009. That's roughly 20% to 25% annual growth combined with the ever increasing safety of an increasingly maturing gorilla. And if the PSR gets back to or stays at current levels until 2009, ... nah, I don't even want to consider that unlikely possibility. My calculator doesn't have enough digits to run that one. :) --Mike Buckley

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