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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (14862)	1/10/2000 8:48:00 PM
From: Thomas Mercer-Hursh	Read Replies (1) \| Respond to of 54805

"...for application software there is no reason for a hasty exit from a later-stage chimp, particularly if it has a gorilla-like status in some subsegment of the overall market. PeopleSoft may be a chimp in the overarching category of ERP, but it is a gorilla in human resources. This makes it an attractive hold particularly in light of the emerging middle market for ERP, where SAP, the current gorilla, has struggled." It seems to me that there are a couple of key questions here and they are ones that depend on the current status, i.e., they are time dependent: 1) This quote talks about "early exit" and "hold", i.e., having made an investment earlier, does one need to get out of it yet. This is a different decision than whether to make a new investment. 2) PSFT when younger came out with what amounted to a new standard in client-server HR. This produced what I recall as some sort of tornado leading to putative gorilla status in HR. That was some time ago now, though. Do they still have gorilla status in HR or have the many other competitors which have come out with HR applications since. Could be, but I'll bet that their position is a lot less dominant and secure than it once was even just a year or two ago. 3) In evaluating investment options, when one encounters a company that is a mixture of a niche gorilla and a chimp for the balance of the business. it seems important to weigh the balance of these two sectors. A company getting 60-70% of its revenue from its gorilla half is still mostly a gorilla, although one might wonder about the future since their other efforts don't seem to be building on that strength. But, if that percentage is more like 30% or less, shouldn't one question whether the overall stock will really act gorilla-like? 4) The emerging middle market for ERP is certainly an interesting and dynamic one, if a bit sickly at the moment, but before I got very interested in PSFT as a new investment, I would want to see reasons why it was expected for PSFT had reasonable likelihood of strong performance there. To be sure, SAP isn't exactly being a winner and some other contenders, e.g., BAANF are doing even worse, but unless PSFT legitimately looks like a company who will be one of the leaders in this area -- and looks that way today, not when that passage of RFM was written -- then I would question them as a G&K candidate.

To: Mike Buckley who wrote (14862)	1/10/2000 9:03:00 PM
From: Uncle Frank	Read Replies (3) \| Respond to of 54805

>> As for more about terminology, if I'm wrong about the use of the so-called word, "effectivity," I'm in good company. Daniel Webster does not include the word in his unabridged dictionary. :) Merlin, from Webster's New Collegiate Dictionary (copyright 1981 by G. & C. Merriam Co.), page 359: effectivity: the quality or state of being effective I rest my case. And I won't even gloat... much <VBG>. uf

To: Mike Buckley who wrote (14862)	1/11/2000 10:26:00 AM
From: John Stichnoth	Read Replies (1) \| Respond to of 54805

Moore is perhaps a little inconsistent here. In a different section he terms AMAT a company that is not a gorilla, because they focused on a niche. AMAT is of course far bigger than almost any of these software companies. A valid objection to that is that we shouldn't compare equipment makers with software companies. And, I won't take the comparison very far. But, it's tough to accept as a gorilla a company that is 1/16th as large as its largest eventual competitor (MSFT), or 1/7th as large as its largest imminent competitor (ORCL)--especially since those companies are still growing like gangbusters. But, another factor in my statement was Lindybill's general rule of not deeming companies gorillas if they have less than $10Bn in market cap. I don't see that as a hard and fast rule, but in any case PSFT fails on that point. Additionally, PSFT has not been acting particularly gorilla-like. It had a miss of earnings estimates last year. It has not been increasing earnings. And, I don't get the feeling that the Vantive purchase was done from a position of strength. All that being said, I understand your point. PSFT has a strong position (niche?) within which it can (and apparently is working to) regroup. The Vantive purchase may give it the critical mass to move strongly into a new area. And the current multiples are very attractive from a value-investor's viewpoint. But, at this point I view PSFT as an other-than-gorilla play. And, also, I was making the point yesterday and I will reiterate--even if some companies, like PSFT, are not included in W&W, I agree that they should be followed, to give us a complete census of companies that can reasonably be argued are gorillas, kings or candidates. Best, John