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Technology Stocks : MicroStrategy Inc. (MSTR) -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (631)	6/21/2000 8:26:00 PM
From: LTK007	Read Replies (1) \| Respond to of 717

Zeev,i know what your saying,you want hard proof this is "death spiral" because then you aren't speculating,you have the smoking gun,so to speak. But the terms of this deal are so loosely stated,we don't know precisely what we have here except that it isn't good.good luck,max

To: Zeev Hed who wrote (631)	8/5/2000 11:45:43 PM
From: Carl R.	Read Replies (2) \| Respond to of 717

Zeev, I didn't realize that the financing was a floorless. I was wondering what kind of crazy person would give them $125 million. LOL Even without that tidbit I think this company is in big, big trouble. First of all, it is tremendously overvalued relative to it's peers: PSR PE-FY00 PE-FY01 Growth Yr/Yr MSTR 8.7 -- -- 24% COGN 8.0 50 38 33% HUMC 2.0 30 16 66% BRIO 1.5 53 23 46% HYSL 1.5 30 17 33% Secondly, even after the $125 million financing they only have working capital of $53.4 million. That may seem like a lot but when you are losing $43 million a quarter (excluding amortization of intangibles and interest expense which they shouldn't have this quarter), it isn't much. I also note that the book value is now down to $22.6 million, or $.28 a share, so the book value should be negative by next quarter. Thus, this company may survive, but it would seem to me that they will need to take some drastic action to do so. Their R&D budget is as large as COGN which is over twice as big, and at 32% of sales is just too big for their sales level. A more typical level is 13% of sales. Their marketing budget is not far behind HYSL which is nearly 3 times as big, and at 76% of sales it is again too big. The normal ratio is more like 50%. In my opinion they tricked themselves by reporting non-reportable sales, and set their budgets using these bloated numbers. Now to get things back in line they would have to lay off 60% of the R&D staff and 1/3 of the sales staff. Even without a floorless, it is an open question as to whether the company can stay above water until the end of the year. I missed an awfully good trade by not shorting this at $240 back in January, though the trade would have been a bit painful at first. If I were short I continue to be short because I think the fair value right now is closer to $5. As for the impact of a floorless, I haven't looked at the terms, so I can't comment too much, but I would think that if the stock can keep the market cap over $1-1.5 billion the size of the floorless would be too small to cause a death spiral. On the other hand, if the stock does fall to the $4-5 range, the floorless could definitely keep the stock falling to penny stock levels. Carl