Re: Expectations and Microsoft business model comparison
You stated:
As far as size goes, everything is relative.If Microsoft added $1 billion to sales it would be aa modest change, but if WIND became a $1 bllion company practically overnight because of i(2)o etc., I would certainly be impressed. By the way, how big is yours, Mark?
The stock market has been very kind to me and many other people the last couple of years and I no longer need to work, so I don't have a company. Nevertheless, my ego hasn't become bloated and I'm well aware that luck has been a big factor in my success. This bull market is atypical and at some point it will stagnate or revert to a bear market. We got a taste of it in March and April and I think we'll see more before the year is finished.
Your expectation that the company will receive a billion dollars in revenue practically overnight is exactly what I was referring to when I stated that only dreamers and traders remain invested in Wind River. No company has ever grown that fast and no company will ever grow that fast. Netscape is the fastest growing software company in history and it took them 3 years just to reach $400m in revenues. Wind River revenues are currently $70m and it will take 8 years of 40% growth to reach a billion. I'll also be impressed if they can grow into a billion dollar company, because it won't be an easy accomplishment and I don't think it will happen faster than Allen Benn's projection of 40% annually. Overnight success is unrealistic and you'd be wise to heed his advice at techstocks.com
You should calculate intrinsic value as far out as you are comfortable projecting earnings, but never much beyond five years, and sometimes no more than two or three years. No matter how you feel about any company, it is risky to count on uncommon performance much beyond a time horizon of five years - even for a growth investor prepared to stare regression to the mean in the face. (You wouldn't be human if you didn't peek farther out, but don't invest on the basis of expected occurrences far into the future.)
Sybase and Informix and good companies to research to give you an idea of why Benn made the above statement. Each grew at a rate as fast as Wind River is growing today and both are now billion dollar companies. The market cap of Sybase is $1.3b, Informix is $1.4b, and Wind River is $950m. Even if Wind River miraculously blows away Netscape's growth rate, you'll only make a small profit when the growth finally stalls.
You might also think about the "winner takes all" theory by studying the database industry and counting the number of players (IBM, Oracle, Sybase, Informix, Microsoft, SAP, etc.). |
