I have now read the Epoch report on Siebel. The following is the e-mail I sent to info@epoch.com, hoping it gets to the lead analyst responsible for the report.
--Mike Buckley
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Dear Mark,
I have been investing in the CRM industry for four years, have owned my Siebel shares for three years, and have been reporting quarterly for three years in two online forums on the progress of my not-real-money "Front Office Gorilla Game." In all of my serious study, I've never seen a report on the CRM arena that comes close to the quality or comprehensiveness of the report assembled by your team of analysts. I made a point of providing the link to your CRM report in the two forums I frequent. Congratulations and thank you!
My reaction to your team's Siebel report is equally positive with regard to its qualitative issues. However, many of the quantitative issues left me scratching my head. I hope you or someone on your team has the time to address the items mentioned below.
The most important issue is that of the PEG ratios in Table 6 on page 19. I'm very familiar with various methods of calculating PEG ratios but I've never run across any methodology that would render results remotely close to your PEG ratios. The reaction by people in our online forums has been the same as mine. We would appreciate it if you would take the time to explain how you calculate your particular PEG using Siebel's numbers to illustrate the method. (It might be a good idea to include that information in your reports or on your website, just as your report thoroughly explains all the other calculations.)
About Siebel's operating margin, on page 17 the report refers to margins of 53% and 55% in 2000 and 1999, respectively. Using your own numbers for operating profit and revenue, the margin is about 22% both years, which is roughly consistent with Figure 6 on the same page.
On page 23, the report states an opinion that "the company will deliver on its promise to achieve 30% -35% operating margins soon" after the economy turns around. I remember from the conference call about Q4 earnings that the company had targeted an increased operating margin of one point per quarter. Even so, that would not top the 30% benchmark. In the Q1 conference call management made it clear that until the economy improved, those targets were no longer in place. When and in what forum did Siebel's management team target operating margins in the 30% to 35% range?
On page 19 the report mentions that Siebel is growing "nearly seven times as fast as the industry." Using IDC's numbers the report mentions on page 3 and the various numbers in your report indicating the company's growth, Siebel's growth has been more like twice that of the industry, an admirable accomplishment. What am I missing?
Again referring to Table 6 on page 19, I'm perplexed that using your dollar values for the companies' market cap and revenue, the revenue multiples you present are wrong on the low side. As an example, Siebel's 2000A and 2001E multiples are understated by about 12%.
There are other contradictions in the report, such as the table in the lower left corner of the title page showing the price/EPS in 2000 as "NM," when it's clear in Table 6 that you show it as 90.6 as it should be. The same table on the title page states the 2000 EPS as $.49, not $.53 as stated in the first paragraph on page 18.
Far less important though indicative of lack of attention to detail, in the first paragraph of page 2 the report states that the company was founded in 1993. In the very next sentence special emphasis is given to the notion that 1997 was the company's first full year of operation. If I remember correctly, 1997 was the first full year of operation as a public company.
Members of the online forums that are discussing your Siebel report and the many, many people who are quitely following the discussion would appreciate it if you can clear up these issues for us. My personal concern is that I can't begin to delve into understanding the DCF tables (thank you for providing the details!) until I have a reasonable degree of certainty that other numbers in the report far easier to understand are credible.
Thanks again for a fabulous CRM report. I look forward to hearing from you or a member of your team.
--Mike Buckley |
