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Strategies & Market Trends : The New Economy and its Winners

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To: Bill Harmond who wrote (3459)	11/27/2000 1:51:35 PM
From: Wizard	Read Replies (1) of 57684

I read the note and it appears that the analyst has finally figured out the difference between direct and indirect materials. He basically says the market for e-procurment and marketplace software are underpenetrated but that growth will slow down for indirect players and the stocks are therefore overvalued. This is not exactly a value-added call, all of these issues have been on the table for a long time. I think the world has become schizophrenic when it comes to hypergrowth. How do you value 200%+ growth on big numbers when it decelerates from 500%+ on small numbers? How about when traditional cost of capital 'risk' arguments indicate a 'proper' discount rate of 10-15%. If you can compound growth at 100-200% for 5 years and your annual discount rate is 15%, there is an obvious disconnect regarding the differential. Anybody running a DCF can tweak it a little and alter their out-year target price exponentially. The facts are that Ariba and C1 have grown at rates never before seen in the software industry. There is obviously something special going on, the extent to which can be debated but the facts remain that unusual growth deserves premium valuations. This call is just noise.

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