Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: t2 who wrote (24997)	6/25/1999 10:59:00 PM
From: limtex	Read Replies (4) \| Respond to of 74651

Tech2000, JFD and thread - One of the posters on another SI thread sent me this analysis. I thought that I would post it here and see what comments or criticisms it would attract as I can't believe it is that simple and the poster is a serious contributor and I would like to have the appropriate ammunition to challenge him:- Let us do a cash flow series. Start off with year one. You just bought MSFT for $430 Billion so enter a negative $430 Billion amount under year 1. Now I am going to give you a wild assumption that MSFT's profit margin is 100%. So the return on investment after the first year is $17,217,000,000 (current years revenue). Now I am going to give you another wild assumption that MSFT will grow at 30% per annum, year after year. So under year 2, multiply $17,217,000,000 by 130%. Blow that out for 10 years. Do you see it now? It will take over 8 years before you will recapture your original investment of $430 billion. At which time, MSFT would have to have revenue of $108 billion in order for the model to be true. Of course, MSFT's profit margin is not 100%. I am using this ridiculously generous assumption to demonstrate how grossly over valued this stock is. I am also using this assumption because the blind bulls will tell you how profitable MSFT is. My counter is that no company has ever had earnings higher than revenue. The blind bulls will also tell you that MSFT has tons of cash, something like $20 billion. Yes, that is a lot of cash to me but it is less than 5% of the market cap. Best regards, L