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Technology Stocks : Hyperion Solutions (HYSL) - An Analytical Gorilla?
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To: Trader Dave who wrote ()8/3/1998 2:50:00 PM
From: Bush Hogger   of 471
 
I like both companies a lot and I have a position in ARSW and am thinking of adding to my position at these levels. However, I wish I knew where the bottom was. If the combined company can grow license revenues at 40% or greater next year, which I believe they can. I think this stock will really take off. At these prices I view the risk reward ratio to be favorable. Strategically the merger seems to make a lot of sense. It should definitely help the combined company compete more effectively against Oracle.

I do wonder if investors are waiting for, results from the September quarter, the first reported quarter as a combined company or the December quarter, the first quarter the company really begins to integrate the sales force, before they decide to step in buy. My hunch is it might be the December quarter, however, I am not willing to take the chance that investors will begin to warm up to this stock earlier and that is why I own the stock today.

Here is what I view as the major risks.

Risks:

1. Sales force integration cause execution problems. Company misses street estimates. Stock gets hammered, possibly as low as $15 a share maybe lower depending on how bad the miss is.

2. Customers hold off making purchasing decisions until they see PLATO. However, I don't really view this as to big a near term risk primarily because PLATO currently does not have write capabilities. Hopefully, PLATO will not have write capabilities for some time. Additionally, the addition of Hyperion pre-packaged applications should also minimize the potential risk of going head to head with MSFT.

Potential benefits:

1. Company executes flawlessly, achieves licenses growth of between 40%-50% establishing itself as the undisputed leader of high end OLAP solutions. The combined company makes $1.80 next year. The stock gets a multiple of 40 to 45 times $1.80 = $72 to $81 a share. All longs celebrate.

2. Both companies leverage off of each others large installed base to sell additional custom built or prepackaged applications.

3. If the company continues to execute next year and if the growth of the OLAP market begins to accelerate as the ERP market matures. This stock could become a classic ten bagger.

I personally view the risk reward ratio as very favorable. Obviously some other shareholders are not as positive as me, all you have to do is look at the chart. I hope the longs are right on this one.
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