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: jonkai who wrote (66603)	4/2/2002 11:19:33 AM
From: Baldur Fjvlnisson	Respond to of 74651

What Scott McNealy, CEO of Sun Microsystems (SUNW), said in the most recent edition of Business Week: "But two years ago, we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?" Now SUNW trades at $8 per share. That's what happens to stocks that trades at ridiculous valuations. They PLUNGE. Guess what? itFELL currently trades at 8x revenues (current share price of $30 times 6.8 billion shares outstanding is $200+ billion divided by annual revenue run rate of $25 billion gives you slightly more than 8). So, substitute 8 for 10 below and itFELL's 80,000 employees below, and here's what you get: "In April 2002, we were selling at 8 times revenues when we were at $30. At 8 times revenues, to give you an 8-year payback, I have to pay you 100% of revenues for 8 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 80,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 8 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $30? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?" Indeed, what we're you thinking as itFELL also known as Intel (INTC) plunged to $4 per share in July 2003? :) Microsoft; currently at over 12X sales and doesn't even fully charge expenses against earnings. PS You can perform the analysis above by plugging in the appropriate date, the price per revenues ratio, and the number of employees, for ANY stock once you have those 3 bits of information. :)