I want to take a shot at the transpost from the Yahoo board about the market discounting two factors when valuing LOR and GSTRF. The poster states that the chance of getting 32 sats up with no failures is 65% (given a 90% per launch success rate) and so there is a discount factor of about .65 currently built into the stock price. Further, he/she states that there is also a .50 discount factor in regards to finding "enough phone subscribers" by the end of 1999. The total discount factor is then .33 (.65 X .5) and so IF the constellation is intact and IF "subscribers are found", the calculated year end Loral share price should be about $55 ($18.5 X (1/.33).
Concerning the probability of achieving a functioning constellation, much greater minds than mine have weighed in on this subject. The professorial Ajit C on the AOL thread has calculated a probability of a well over 90% chance that there will be a functioning constellation by fall. With the robust backup plan in place, it sure seems they could successfully launch enough birds. I don't think it's much of a problem even with a 4-spot failure. To paraphrase Maurice's observations: these little birds are cheap and the opportunity cost of not having a functioning system is huge - so keep making 'em and shooting 'em - enough birds are bound to stick in orbit. Altogether, I never cared much for Readware's "show me the satellites" discount pricing model for LOR and GSTRF.
I do believe that the Yahoo poster was correct in placing a large discount on "show me the customers." IRID's problems attracting customers are weighing heavily on LOR/GSTRF. However, thankfully, GSTRF is not IRID and should easily surpass the earlybird. After GSTRF shows the Street the customers, it will also have to show it the money. Thankfully, the single-digit cost per minute to GSTRF allows for the discounting of planned rates that IRID cannot afford. Unfortunately, the 9+ month Zenit delay has allowed other wireless companies the opportunity to grab customers G* might have gotten and build out new systems.
So, how are GSTRF/LOR currently valued? Is it"fair"? Well, not if you consider some of the Internet stocks -- what is their discounting mechanism -- maybe that there is only a 99% chance that every man, woman and child in the world will use their services and products. I think currently, the launches are one of the lesser discounting factors. It seems that the China political situation is weighing down the stock. Every day for the past couple of weeks looking at the LOR option activity, there seems to be a battle between bulls and bears who have heavily bet on their respective sides of the near and intermediate term option tables. Certainly, we must ascertain what G*'s customer base will be -- if we hit the "targets" by the end of 1999, won't there be a 50% discount factor applied then for growth in the number of customers by the end of 2000? Also, what will be the profit margin 1, 2 or 4 years from now with intense competition from multiple wired and wireless telecos? Finally, what will Loral and G* look like in 6 months or 2 years? Independent? Division of a giant teleco?
I sometimes wish the market was a perfect discounting mechanism -- but it is definitely not. At least that's my opinion.
Regards,
Steve Rachbach |
