Raptor, Tom, sorry about the numbers, I have too many numbers in my head (and I'm lazy). But change the numbers to Earning $110m and worth $20bn, I don't think it makes much difference.
>>How much would someone, or some organization, be willing or have to pay for
PeopleSoft on the market (i.e. as an acquisition). I think that has something to do
with the multi-billion dollar valuation.<<
That's how I look at any company whether long or short. If I spend $12 billion on Peoplesoft, when do I get my $12bn back? Plus some sort of return on the capital. It is a basic and simplified question, but you can run some rough future discounted cashflows to get an idea, based on a range of prevailing economic conditions. If SAP, Oracle and Baan decided to close down tomorrow I might be tempted to dip into my savings.
As I have said before, I respect Peoplesoft. But they are not the market leader, by a long way. I think all ERP companies will feel the pinch once the Y2K and legacy mainframe migration phase is coming to a close. Of course there will still be good business to be had, but it impacts substantially my personal estimates of future earnings.
Fire up Excel, choose a discount rate and make some projection of earnings. You will see the massive and sustained growth required to justify the price. And as PSFT doesn't pay any dividend, holders today must have an expectation of a higher stock price in the future. Hence the $20bn value.
No company is going to buy PSFT for cash. They would only do it with their own inflated share value. And I don't see a suitor in today's market (unless AMZN or AOL carry on their ridiculous price rises).
Am I so far off the mark? |
