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 : Internet Analysis - Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (305)	4/8/1999 4:23:00 AM
From: Joe E.	Respond to of 419

I know you don't follow Yahoo, but look at the recent earnings release. It shows a 295% growth in revenue per share from the preceeding year. Analyzing the stock requires knowing how long the growth will last. It is only logical to say that the growth will slowly slow down over time - that is what generally happens. Let's say, instead, for simplicity that the growth continues at its present rate for x period of time then falls to 4.5% (economy growth). Here is the total 10 year growth based upon different numbers of years of current growth followed by 4.5% growth for the remainder of the ten years: Current growth for 1 year: 439% Current growth for 2 years: 1238% Current growth for 3 years: 3496% Current growth for 4 years: 9870% (100 times as large) Current growth for 5 years: 27864% Current growth for 6 years: 78659% Current growth for 7 years: 222052% (2200 times as large) Current growth for 8 years: 626846% Current growth for 9 years: 1769565% Current growth for 10 years: 4995423% (50,000 times impossible!) Trailing 12 months sales are $257.3 million dollars. (About $1 per share). Current after tax margins are about 14% ignoring interest income. Note that continuing the current growth for 10 years would yield a company with annual revenues of $12,850,000,000,000. The table above says to me that there is one really big question - how long can this growth continue?? Just for fun, lets assume a company growing at 4.5% with 14% margins in ten years commands a P/E of 25, and we need 20% per year to hold this stock for the next ten years. Then I will pay today 4 times the earnings ten years hence for the stock. Here then is the current value of the stock depending upon the length of the growth period: Current growth for 1 year: $2.50 Current growth for 2 years: $7 Current growth for 3 years: $20 Current growth for 4 years: $55 Current growth for 5 years: $156 Current growth for 6 years: $440 Current growth for 7 years: $1243 Current growth for 8 years: $3510 Current growth for 9 years: $9900 Current growth for 10 years: $28000 The market is probably somewhere around 5 years, plus margin improvement. You and I would probably argue that anything over 4 years is patently impossible. My point though is that the great unknowable is the growth path.

To: Chuzzlewit who wrote (305)	4/8/1999 8:15:00 PM
From: dpk	Read Replies (1) \| Respond to of 419

Chuzz: Yes, I had read that article on cash flow use in the WSJ a few days back. Even though it was published on April fool's day, it is encouraging to read that some analysts are taking a step in the right direction. But again, in their urge to simplify, they are using operating cash flow/EBITDA and not free cash flow (which nets out adjusted taxes, capex and Change in WC), and are using multiples of a point estimate of CF as opposed to discounting a future stream of FCF. Whatever works, I guess. dpk