So where might that leave us?
1. Anyone that felt comfortable holding the stock at $ 28 when predictable earnings were at $ 1.00 should, w/o assuming any P/E expansion (a worst case scenario) feel as comfortable holding the stock all the way up to $ 50+ based on 3dfx mngt guidance for the rest of the year. Another way to look at it is the downside risk on today's $ 32 price is significantly lower than it was on yesterday's $ 28.
2. Based on yesterday's CC, 1998 should be an outstanding growth year for 3dfx w/o assuming that Banshee is a roaring success right off the gate. Ballard (or his CFO, I don't remember who answered that question) did not build a lot of the revenue (as a % of the total) on Banshee in Q3 & Q4.
3. Based on the above, and 3dfx tremenduous brand and understanding of the market, the company is very likely to deliver on the $ 2.00 +/earnings for 1998, regardless of who ships what in Q3/Q4. The stock price will catch up as people start believing after seeing consistent performance quarter after quarter. So $ 60 / share at some point in the next 12 mos is extremely likely IMO.
4. I think the interesting issue is what happens in 1999 and 2000. Can the company keep growing from $ 250 M to $ 400-500 M to $ 800M+ in revenues (much like Creative did in the early 90s)? Well, maybe I am just reading too much in Ballard's comments on the conference calls, but it looks like 3dfx secret hope and long term focus is on having its technology+branding combination truly establish a platform of its own (the same way Nintendo and Sega have). Given PCs pricing direction, 3dfx marketing and engineering prowess, I think this might just happen, though it is still a long shot.
Here's why: Say you are a game developer. 3dfx gives you a consistent API/platform to develop on that allows you to sell to PC users and deploy the games on LBE machines as well. Simultaneously, PC prices fall to $ 400 by early 99, and you have a chip (Banshee) that cost $ 20 - $30 giving you vastly superior 2D/3D performance than a Sony or Nintendo. The following year you are down another $ 100 in cost, suddenly you now have a platform that will seriously play against consoles. That has not happened in the past, but the price ration between PCs and consoles was 10/1 not 2/1 or 3/2.
What do you all think of the above scenario? It sounds crazy, but not more than Autodesk's business plan circa 1983 or Adobe's circa 1985.
Granted, this is a long one, but if it does come true, even partially, then all longs have a potential ten bagger on their hands today. Now if the Oppenheimer guy could just short this stock and hold his position for the next three years :-).
Eric |
