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Technology Stocks : Internet Analysis - Discussion
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To: Joe E. who wrote (19)2/1/1999 5:33:00 PM
From: Chuzzlewit  Read Replies (1) of 419
 
That's an interesting approach Joe. Here's an analysis that I used with DELL. It is possible because there are marketing firms like IDC that report market share data and total market growth. I would appreciate it if you would look at the following analysis and think about how it could be hybridized with your approach and perhaps used in connection with companies like AOL.

The computer industry is projected to be growing at 17% per annum, but Dell is currently growing at something like 50% per annum. Dell currently has around an 8% market share (give or take) world-wide. Obviously, at some point Dell would become so big that it would become the industry, and could then only grow at the industry rate. We can calculate how long that would take as follows:

Dell's sales in n years is dms*(1+dg)^n where dms = Dell's market share and dg is Dell's growth rate.

The industry will grow to (i+g)^n in n years, where g is the industry growth rate.

So, when Dell's market position equal the entire industry we have:

.08*(1+.5)^n =(1+.17)^n
and
ln.08 +n(ln(1.5) = n*ln(1.17)

n*ln(1.5)- n*(ln(1.17)= -ln(.08)
n*(ln(1.5)-ln1.17) = -ln (.08)
n = -ln(.08)/[ln(1.5)-ln(1.17)
n = 10.17 years

Using this approach it is also possible to calculate at what point Dell will control 25% market share, and so forth. This is interesting because Michael Dell predicted controlling 25% market share within five years, so it is easy to calculate the required growth rate to achieve that target.

TTFN,
CTC
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