Winlosedraw: Microsoft had very little profitability even when it first went PUBLIC in its FORTRAN to Windows era. As I recall, most of my analyst and broker colleagues had similar concerns over MSFT "skyhigh" P/E when it first went public in March 1986. If I recall correctly it went public at an IPO price of $21/share and traded as high as $ 28 the first day of trading. During the period 1986 to 1990, they grew revenues nicely but only managed to eek a miniscule $.01 to $.04 /share profit evey year, even though its stock price rose to about $80/share during that period of time.
You must understand that all new company's just don't come out the shoots with huge profits, HIGH R&D expenses at the beginnig prevent profits from soaring.....that is the case with PALM today. But the market pays for future profits and discounts then vigorously in the case of PALM and in the early case of MSFT.
Therefore, your statement:
Except that MSFT was, as I recall, highly profitable even in the midst of its titanic struggle against the then-mighty Big Blue...
is factually UNTRUE
While, yes they were more profitable than PALM, however, you can't compare software to hardware. Palm is vitually a hardware company now, therefore profitability will obviously not be as high as a pure software company such as MSFT. But as PALM evolves its software and OS business....that when I think we will see the margins expand.
see below (with those EPS, MSFT P/E ratios were statospheric at the beginning), Yet they gradually "grew into" that 1,000+ P/E they had in their early post - IPO years:
microsoft.com |
