To all,
According to my calculation, there is nothing wrong with Corel itself,
there may be something wrong with the investors/gamblers who
short-sell Corel stock badly.
First in the bear market lately (about 1 1/2 months ago until now)
especially on the hi-tech stock market, Investors on Bay and
Wall Street don't want to invest money onto the growth hi-tech
stock companys any more. For example U.S. Robotics was down 16%
in the day the earnings report released because 66 cents/share
doesn't support the share price of seventy-something, ignoring
how big growth the company achieved. Meanwhile IBM increased more
than $10 (to 102 or so) after earnings report came out because
$2.52 /share earnings (or roughly more than 10% annually)
are well supported the stock price of $100. So Corel plunged 12%
(on the TSE) when earnings report of 1 cent/share is reasonable
but not exceptable (on my view).
Secondly, the bad-thing happened to Corel is that the company did
not sell alot of graphic products namely CorelDraw and related
graphic products. During this special period, when there is some
so-so news (not very bad news), people try to speculate to the
worst case possible. When I read news, some analysts thought that
Corel Graphic products are 'mature', no one wants to buy them any
more and they are afraid of Corel go head-to-head with Microsoft.
The competition between Corel and Microsoft should be obviously
viewed on March 1st, 96 when Corel acquired WordPerfect not
RIGHT NOW. The thing I hate most is when the stock price of some
company goes down, some analysts try to make it worse in order
to take advantage of the short-selling they made. In my belief,
for the Corel case, these guys will pay a high price for their
speculation.
After some so-so news about Corel above, would you please,
let me express some of my GOOD view about the company. Also
please, correct me if I am wrong.
First, Corel will release the CorelDraw-WordPerfect package for
Power-Mac in August (people should expect to see this software
on the store-shelf by mid-August, according to Ottawa Citizen
Friday July 26, 96). Apple company celebrated the birthday
party at Corel head-quarter in Ottawa. To this news, the Corel
stock jumped $1.10 on Thursday July 25 on TSE. This is a very
good news because according some "famous" analysts the CorelDraw
is a DEAD-software, it now proves that it is well-alive and very
healthy. In addition, Mac's users are usually buying the software
they like, especially Microsoft-alternative product. Again, in
my belief, CorelDraw-WordPerfect package will serve Mac's users
well and they will like it.
Secondly, WordPerfect suites for PC are selling very well, at least
in Montreal, Canada region. I did come to check at 2 retailed stores,
(not just listening to what Cowpland said because this guy is sometimes too optimistic about his product). One store is at
McGill University, where I worked and the store guy is the guy
who used to take smoking-break with me. This guy told me that
the store first order 100 copies of WP Suite sold out within
1 1/2 days. Now they already placed the second order about three
weeks ago, but the store did not get any yet because of shortage of
supply. Every day they have to tell their customers that WP is
not coming yet at least 15 times a day, he said that we might
have to put a sign to let people know WP Suite is not available yet.
Another store is Crazy Irving (the biggest computer store in Montreal)
They said Corel WP Suites are selling very well so that they have
to display the software right on the entrance so people don't have
to search for it. So all of this selling number should convert to
revenue next quarter.
Last but not least, according to UPSIDE
(see upside.com Corel paid
Novel ($11 M in cash, $100 M in equity and Corel may owe Novel
$8 million a year in licensing fees over the next five years.).
This turns out about $151 M. (maximum) for WP, what a bargain
price. Also in the above article, after Corel acquired WP,
they replaced all old 486 PCs with the brand new fully loaded
Pentium, this ofcourse costs alot of money in LAST quarter (in
my opion). At the same time, Corel chopped off 1/2 of WP work force
in administration and marketing, this is good for operating cost in
a long term competition. The number of employees at WP-Utah is
now about 300 software engineers and 300 technical supporters.
With the $90,000 /year average (salary + group health insurance
+ allowance etc.), it turns out $54 M. annually,
if we add roughly $12 M. a year for other expensive (renting,
utility etc.), the total would be $66 M. annually.
According to the Wall Street Journal (http://interactive.wsj.com),
last QUARTER (not annual) WP sale alone was $70.8 M. or 81% of
total sale.
To all the above numbers we see that the Corel-WP is making quite
a lot of money in the long-term (at least for two years) despite
of the first restructuring expenses.
The only thing that bother me a bit is the advertising expense,
it was $22.674 M. or 26% of revenue for last quarter. To me,
We need to advertise our new products ofcourse, but to some
certain limit only. I believe that if the company used only
$17 M. for advertising, the result would be the same. This left
$5.5 M. (or 11 cents/ share) for the investors, the stock price
would not be as bad as today. Let me make one example about
the Corel's advertising on PC Magazine (I am a subscriber),
Why Corel have to spend 2 pages for each WordPerect Suite 7
and WordPerect Suite 7 Professional version) commercial to introduce
WP Suites while these two can be combined, they are similar,
the only difference is including Paradox database in Pro version.
As I mentioned above, Advertising for a new product is a must,
however we have to control our expenses especially at the
transition time (we have to spend for alot on other neccessities).
This time is the time that investors are still very doubt about
our ability to handle the new product which Novel have failed and
lost more than $1 Billion dollar over the ONE and HALF years period.
I hope that Corel (Michael Cowpland) will learn the big lesson
lately. Don't just complain only on the Bay and Wall Street
guys for dumping the stock, Mike should also change his attitude
in advertising especially $100 M. commitment. Don't just let
Financial Post blows you up in ranking you are number two (after
TD bank) in marketing. Ofcourse nothing is wrong with this ranking
but spending money unrealistically for commercial is somewhat
unexceptable. In this ranking, they didn't mention paying 16 full
color pages on PC Magazine was the greatest idea but they mentioned
about the Corel contest.
Thank you for your attention,
D.H. Tran |
