Tony it is hard to respond to your question since it seems to have been erased. Nevertheless it apparently had something to do with last quarter sales. Interestingly PROG had sales of $76million, on which they made a profit of $1.5 million. The other four companies combined had sales of $75 million, on which they had a combined loss of $35 million. The market cap of the money losing combination of the other 4 companies is 37 times that of PROG.
Let's look at some other interesting comparisons. Assume for a moment that PROG does grow at only 15%, while DRIV grows at 52%. It will take until 2006 before DRIV is the same size as PROG, and until 2015 before DRIV is 10 times as big as PROG. And this assumes of course that PROG is unable or unwilling to adopt the strategies of fast growing competitors. On the other hand, if BYND does in fact grow at a rate of 135% a year, then BYND will catch PROG in size by mid 2001, and will be 12x as big as PROG (the ratio of their market caps) by late 2004. Given these growth assumptions, it is clearly easier to support the valuation of BYND than DRIV.
The easiest assumption, and perhaps correct, is that the market is being completely irrational, and overvaluing these newcomers to the industry. They are growing fast, or at least have so far. Based on the valuations they have the only other conclusion you can reach is that the market considers it relatively certain that they will continue to grow at an astounding rate, and that they will eventually have very fat profit margins, and furthermore, that much of this growth will come at the expense of stodgy old-fashioned merchants like PROG who will be unwilling or unable to adapt to the times.
Myself, I think that PROG will in fact adapt to the times, and will continue to grow at a reasonable clip, and that in doing so they will slow the growth of the upstarts somewhat. Furthermore, I think that the market will eventually demand profit from the other players, and that when their supply of capital is cut off, they will be unable to expand further. Alternatively one can conclude that it only makes sense for one of these other companies to buy PROG. They could pay twice what PROG is currently valued at without significantly diluting their existing holders. Furthermore it is possible that PROG managers could even show their purchaser how to make money selling software. <VBG>
Time will tell, but I am confident that they day will eventually come again when profits are valued more highly than losses.
Carl |
