According to Reuters, the bailout of Fannie Mae and Freddie Mac (FRE) was greeted with cautious optimism.
Reuters says the the Justice Department has hired a litigator to look into antitrust issues at Google (GOOG).
The Boeing (BA) strike is having an impact on suppliers and customers around the world, according to Reuters.
Sun Microsystems, Inc. (NASDAQ:JAVA) has announced that it has entered into a stock purchase agreement to acquire Stuttgart, Germany-based innotek. Sun is calling innotek the provider of the leading edge, open source virtualization software called "VirtualBox." VirtualBox has had over 4 million downloads since January 2007.
As part of Sun Micro’s xVM portfolio, VirtualBox will have the support of Sun’s global development community, field resources and partners to make VirtualBox even more compelling to developers and end users, driving greater adoption across a broad set of communities. This will also enable desktops or laptops to run Windows, Mac, Linus, or Solaris O/S side by side.
This is after Sun announced it would acquire MySQL last month. Financial terms were not disclosed, although this is listed as "not material" to earnings.
Citrix Systems (NASDAQ: CTXS) saw a brief rally after it acquired XenSource for virtualization and we all know how the hotter-than-hot VMware (NYSE: VMW) IPO brought virtualization front and center in the investment community.
Jon C. Ogg
February 12, 2008
VMware, Inc. (NYSE: VMW) has posted earnings of $0.26 non-GAAP EPS on $412 million in revenues. First Call had estimates pegged at $0.24 EPS and $417.37 in revenues. Even though this represents an 80% revenue gain, this is going to be dismal for most VMware investors.
If the company offers guidance in the conference call, Next quarter’s estimates are $0.24 EPS and $436.41M in revenues; if the company offers 2008 targets, those estimates are $1.17 EPS and $2.08B in revenues. This was only the second earnings report out of the company and its first full quarter as a public company. Analysts had an average price target on VMware of $105.88, and we’d likely expect many analysts to have more cautious comments that this looks "near full value" based upon today’s numbers. Its former parent, EMC Corp. (NYSE: EMC) is set to report its earnings tomorrow.
Diane Greene, president and chief executive officer of VMware: "We begin 2008 with more than 100,000 customers, 500 technology and consulting partners, nearly 10,000 go-to-market partners, and more than 5,000 employees. As others begin to enter the market, VMware and our partners are continuing to broaden and deepen our highly reliable end-to-end virtualization solutions."
VMware stock closed down 1.2% to $79.55 in normal trading and its shares had mostly traded in a $76 to $83 trading range over the last five trading sessions. This is the worst event-risk trading seen on this with a drop of 25% to $62.37 in after-hours trading. In fact, this essentially wipes out most of the post-IPO gains. VMware will need to show some huge guidance to make this initial reaction a bit less violent.
You can imagine the headlines for Tuesday: "VIRTUALIZATION CRAZE ENDSAS FAST AS IT STARTED"….. That might prove true for VMware, althoughthis trend will be a huge savings boon for every large and mediumenterprise out there.
EMC shares are down some 9% or more to $15.30 in after-hours trading after a mere 1% gain in regular trading today.
Jon C. Ogg
January 28, 2008
On Wednesday, October 24, we’ll get our first look at the real VMware (NYSE:VMW) earnings. "Consensus" estimates are still varied from source to source, but we have First Call on last look as showing $0.17 EPS on $332.5 Million. We have another source at $331 million, but the truth is that this doesn’t matter. The highest estimate we have seen is $352.1 million and after the massive performance any logic would dictate that this has to blow away all of the high numbers and then some. If not, then it’s just another overpriced hi-flyer.
WARNING from 24/7 Wall St.: logic can still fall victim to the VMware conundrum we have explained. We gave a scenario of what current $100+ stock prices actually look like on the valuation front. That VMware stock conundrum is going to exist for some time until the float catches up.
If VMware offers guidance, the street is at $0.19 EPS & $382.8 million for next quarter. Watch the guidance closely, because that is a part of what caused the hit to Citrix Systems (NASDAQ:CTXS) shortly before completing the XenSource purchase to enter its virtualization phase.
Traders are still using stock options as a stealth trade to playVMware. It traded 4.4 million shares of stock today, but the NOV putshad over 5,000 contracts of the six closest active strike prices andthe NOV calls traded over 10,000 contracts of the seven closest strikes.
On Thursday, October 25, we’ll see how this impacts EMC Corp. (NYSE:EMC) and we’ll follow up with a more combined and interfaced preview for EMC separately tomorrow. Below are the other key issues you’ll want to know regarding VMware:
Jon C. Ogg
October 23, 2007
Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers. We just released our first part of two of our "Small Cap Internet Watch List" for subscribers to see which stocks we think could be acquired (and by which suitors) under the right circumstances in the space. This year alone we have discussed how aQuantive, 24/7 Real Media, and Web.com were acquired off this list;and you can see samples of this.
Citrix Systems Inc. (NASDAQ:CTXS) has officially become a "virtualization stock" as it announced this morning that it has closed upon the $500 million purchase of XenSource, which was announced in August. The company now claims that Citrix is now the only company to offer organizations an end-to-end virtualization infrastructure that includes application, desktop and server virtualization solutions. The company has many other announcements and demonstrations this morning at its App Delivery Expo in Las Vegas:
Citrix is also seeing shares trade up on an analyst upgrade. Deutsche Bank raised its Hold rating to a "Buy" rating based on its conviction that XenSource is a legitimate vendor in the virtualization market behind VMWare (VMW). Deutsche Bank also noted that XenSource could contribute more than expected to the company’s fourth quarter.
As a reminder, Citrix saw shares down briefly about as much as 10% after its earnings report last week. Shares are up 1.5% at $40.24 in pre-market trading.
Jon C. Ogg
October 22, 2007
VMware Inc. (NYSE:VMW) shares managed to cross the century mark of $100.00 on Tuesday. This has been an unbelievable stock with a premium IPO pricing at $29.00 (under our projected IPO price target) and the stock never seeing a sub-$50.00 print. Shares even managed to trade over 5.8 million shares on Tuesday’s 6.8% gain to its highest post-IPO close of $101.61, making this the busiest trading day in the stock since September 12.
There is no doubt that this one is a beneficiary of ongoing window dressing and the tech-markup with the other key tech stocks outlined as we enter the end of the year for many fund managers in October. But even with what we labeled as the "VMWARE CONUNDRUM" because of a low float exaggerating it’s price moves, money managers’ and traders’ demand for stock in the virtualization king seems tireless.
There is no doubt that the company is the leader in virtualization and there is no doubt that the company wants to exceed its targets and will do whatever it can to beat targets. It has already made itself an acquirer and will likely do so at each new virtualization conference it attends. But at a closing price of $101.61 what does this stock look like in valuation?
Red Hat Inc. (NYSE:RHT) is starting to look more and more like a traditional software company each quarter. The valuations are no longer like virtualization values, and virtualization is probably going to help Linux system sales directly for Red Hat. Here are the key results:
Red Hat released the beta version of the Red Hat Developer Studio, an integrated Eclipse-based set of open source development tools and runtime environment. VMware’s (NYSE:VMW) rapid launch and faster investor absorption tied with cheaper RAM and multi-core processors are both lining up to be just what the doctor ordered for Red Hat and other Linux players in general (read about that on the Red Hat site on virtualization).
In addition, Red Hat today announced that its Board of Directors had authorized the continuation of the Company’s stock and debenture repurchase program. Under the program, the Company is authorized to repurchase in aggregate up to $250 million of the Company’s common stock and in aggregate up to $75 million of the Company’s 0.5% Convertible Senior Debentures due 2024.
If Red Hat just meets fiscal FEB-2008 EPS targets at $0.70 then even after the 4% jump in after-hours prices its forward P/E ratio on a non-GAAP basis is becoming more than easy to mentally absorb at 27.5. The company does have more competition, but this new opening up of the desktops from virtualization in 2008 to 2009 and beyond may really open up the market for this company.
The wildcard for this one tomorrow is going to be the Wall Street research calls with upgrades or downgrades. These numbers on the surface have no WOW-factor to them, but the flip side is that these numbers are also starting to look more normalized.
Jon C. Ogg
September 25, 2007
Jon Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.
This weekend may mark the official end of Summer, but VMware (NYSE:VMW) and EMC Corp. (NYSE:EMC) shareholders are going to have to watch the calendar. The brokerage firm and underwriting quiet period for this super-hot IPO should be ending. This may actually be one of the most impacting events on shares of VMware and on EMC since the IPO, even if it is merely the order of post-IPO transition on the calendar. That being said, the analysts at the underwriting firms will all be able to issue formal research reports and those may start coming very soon.
To throw another wrench in the machine, Friday is September stock options expiration date. We recently noted how traders have been using stock options as a stealthy way of having exposure to VMware. We have referred to a "VMware conundrum" and this may be contributing to the option trading as "less risky" trade if you can imagine that.
When recent IPO’s in tech stocks reach $20 Billion and $25 Billion in market capitalization rates, it is always interesting to see how this compares to other giants in related sectors. Surprisingly, depending on which source you use, the market capitalization rates are virtually identical for VMware (NYSE:VMW) and Adobe Systems (NASDAQ:ADBE).
Here is how the quarterly earnings and growth rates stack up against each other:
Market Cap Comparisons:
The truth is that virtualization the next "next thing" and as a sector virtualization is going to enjoy larger growth rates for some time. It will arguably even be immune from economic shifts in 2008 as the growth rates are coming regardless of the economy. Maybe virtualization will grow at 50% instead of 70%, but this is still where things are going.
We still believe that if this VMware stock conundrum didn’t exist because of an incredibly low float that shares would not be where they are today. This is an extremely valuable company and we won’t refute it or even fight it. Just understand that this low float manipulates that price moves and we have noted already how investors and traders alike are using the various call options in multiple months and multiple strike prices to play the stock as a stealth trading basis.
VMware (NYSE:VMW) is on of the stocks that no one seems to get enough of. Part of the reason is more than easy to figure out, because virtualization is the next "Next Thing" and next buzzword for investors.
But there does exist this stock conundrum because of the EMC Corp. (NYSE:EMC) relationship and ownership. The float is tiny, so it takes a far lower amount of money in and out of this stock to manipulate the price of a $25 Billion market cap. To top it off, we noted earlier how investors are starting to use out of the money stock options as a manner of gathering exposure to the company. While it is risky and while many of the strike prices may expire worthless, it is too hard to blame anyone for using a stock option to play the stock. We just noted how this new $90 target from an analyst may be hard to justify, but this stock does have a mind of its own.
The VMWORLD CONFERENCE 2007 in San Francisco was a big catalyst for the company. VMware even announced an acquisition of a private virtualization company after less than a month of being public. That is good, because the company has a whole lot of market cap to grow into. It cannot justify that market cap entirely on its own, so more partnerships and acquisitions would make sense.
But interestingly enough, there are some more virtualization conferences coming up. There was a release out yesterday showing the InfoWorld Virtualization Executive Forum at the end of this month.
What’s good about this is now virtualization is on the map, and this one is in New York closer to the analysts and fund managers that may be looking for other ways to invest in the sector. VMware also today announced the first annual VMworld Europe conference in Cannes, France from 26th-28th February 2008.
There are many developments in this space and virtualization is going to be helped by cheaper and cheaper RAM and multi-core processing power. Now the company itself has to demonstrate that its stock is worth the $25 Billion on paper.
Jon C. Ogg
September 13, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.
VMware (NYSE:VMW) is not wasting any time and not resting on its laurels. The virtualization leader has been public not even one month yet. The company today announced at its VMWORLD CONFERENCE 2007 that it has acquired Dunes Technologies, a company that provides IT process orchestration software for virtual environments. Financial terms and conditions of the deal were not disclosed. This is a bit more aggressive than we would have expected last week, but this company has a whole lot of market cap to catch up to in the form of numbers and results. This probably won’t be the last deal it ever makes.
Raghu Raghuram, vice president of products and solutions at VMware: "Dunes has developed a powerful orchestration platform that will allow us to automate the entire virtual machine lifecycle from requisition to de-commissioning, while complementing existing VMware management and automation solutions such as VMware Lab Manager and the recently announced VMware Virtual Desktop Manager."
Dunes Technologies was foundedin 2001 has been financed and developed under the leadership of Affentranger Associates. The company is based in Lausanne, Switzerland with offices in Stamford, CT.
Shares of VMware are up another 2.4% pre-market at $78.60. EMC (NYSE:EMC) shares are up almost 1% at $19.33 pre-market. This has been one incredible post-IPO story.
Jon C. Ogg
September 11, 2007
Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.
Goldman Sachs has removed EMC Corp. (NYSE:EMC) from its beloved Conviction Buy List this morning, although the firm is maintaining an official "Buy" rating. The catalyst for the initial call was VMware (NYSE:VMW) and the research note says this has played out and investors are one step further in understanding the underappreciated value of core EMC. The note does remain positive that EMC should continue to be bought as more balanced growth, multiple product cycles, and shareholder value initiatives after the partial spin-off of VMware are going to likely keep a bid under EMC shares. Goldman Sachs also said the 5% gain since adding it on July 31 was higher than the 1.2% gain in the S&P 500; and on an annual basis that EMC has risen over 65% versus just over 12% for the S&P 500.
A lot of this sounds close to our "VMware Conundrum" from the end of August. Our subscriber alert is no longer under embargo since the IPO is basically a month old now, and here is what we sent to paid subscribers as a way of profiting on the expected Downside in EMC stock right after the VMware opening. This was where we compared it to a myriad of other major spin-offs, and gave some downside targets for a very short-term trade. Special Situation Investing Newsletter trials are available.
EMC shares are now down over 1% at $19.15 in pre-market trading, and this $19.89 to $20.00 top is starting to look like a harder and harder hurdle to overcome. VMware shares are down almost 3% at $67.90 pre-market. As a reminder, we gave note about what to expect from other companies ahead of VMware’s VMWORLD 2007 CONFERENCE in San Francisco next week.
Investors still need to read all about VIRTUALIZATION as much as they can. The underlying growth that is going to occur at VMware AND in the virtualization space, regardless of how that individual tracking stock reacts, is going to be large enough that everyone will want a larger and larger piece. Citrix Systems (NASDAQ:CTXS) acquisition of XenSource is just one of many forrays where companies are going to do what they have to do to get in, although many companies will have to use the continued ‘partnership route’ rather than making acquisitions.
Jon C. Ogg
September 7, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER and he does not own securities in the companies he covers.
VMware, Inc. (NYSE:VMW) has been an unbelievably strong IPO after the partial spin-off from EMC Corp. (NYSE:EMC). Shares opened for trade last Tuesday and are up about 40% from the initial open. Some were calling for as high as $60.00 after the open, and that got hit the second day before a 2 day breather. But the stock screamed up Monday to $65.99 and now today shares are north of $71.00.
The initial offering went off at a $29.00 pricing for 33 million shares and it goes with no surprise that the underwriters exercised the 4.95 million share overallotment. So this means there are 37.95 million shares in the free float and unless they make a huge rule exceptions there are no shares coming in the immediate future. So the market cap of the free-float or available shares is $2.6565 Billion. Take away the mutual fund and investment advisor shares that were bought because they felt they had to have shares on the books and you end up with a free float that is far smaller.
EMPLOYEE & COMPANY SHARES: The ex-EMC employees that converted shares got to convert shares of 1 EMC share for 0.611581 VMWare share, so these employees are sitting on more than a double. That is also after EMC’s underlying shares had enjoyed a 50% rise since earlier this year. Those employees are probably licking their chops for that first lock-up expiration (even if not all the eligible EMC employees converted all shares, ouch) 180 days after the IPO. Employees appear to hold roughly 11.8 million shares, but there are actually 70 million that have been stated that could be granted in the future. EMC owns 26.5 million of the class A shares have identical rights except that Class A shares have votes of 10 to 1 compared to the free float B shares. Intel and Cisco shares are locked-up for 1 year.
HERE ARE THE FINANCIALS SO FAR: total revenues were $703.9 million in 2006 and $387.1 million in 2005; Software license revenues were $491.9 million in 2006 and $287.0 million in 2005. The estimated pro forma EPS for 2006 was $0.22, but the earnings for Q1 2007 were listed as $0.11 for that quarter alone. Total revenues for the six months ended June 30, 2007 were $555.5 compared to $285.5 for the six months ended June 30, 2006, representing an increase of $270.0 or 95%. Operating income for the six months ended June 30, 2007 was $93.1 compared to $56.1 for the six months ended June 30, 2006. Book Value per share as of March 31, 2007 was $4.93.
SHARE CALCULATION & MARKET CAP: The pro forma numbers given as far as total shares for the A&B shares combined is 332,500,000 on all the calculation sheets. We cannot merely combine the A shares into the market cap calculation because of the 10-1 voting right compared to B shares, but we have to for calculation purposes. That will give somewhat of an understated market cap but otherwise we are using purely theoretical numbers. Based on a 332.5 million share count and based on a round number price of $70.00, EMC would have a total market cap of $23.275 Billion. Once again that is a tad understated, all things being equal.
TOTAL MARKET OPPORTUNITIES & COMPETITION: Interestingly enough, it gives an IDC number of 24.6 million x86-based servers in 2006 with a growth projection to 33.8 million units by 2010. It believes that 17% of servers will be running virtualization in 2010. It also estimates that business client PCs reached 489.7 million as of December 2006. Calculating these becomes arduous as far as the total market opportunity, but it would be easy to make the argument that the market opportunity for virtualization could be well north of $10 Billion in 2010, and some could easily derive a far larger number. Security will become quite a large factor even compared to today with so many systems running, and thanks to above for cheaper DRAM and multi-core processors. Citrix (NASDAQ:CTXS) is now a competitor after the $500 million buy of XenSource, and you can count Symantec (NASDAQ:SYMC) and Microsoft (NASDAQ:MSFT) coming on stronger next year. There are many more of the larger companies that also are entering or want in.
FINALLY, THE CONUNDRUM: With a $23 Billion market cap, some would argue that today’s price may reflect close to the entire market place more than 3 years out. But the calculations are as varied as could be and we won’t commit to a single number. As long as those locked-up shares stay locked-up, the bulls have one more comfort layer. If you make the argument that this trades close to 16, 18, or 20 times 2007 revenues it sounds unsustainable, although this value is reflective more of the future than it is 2006, 2007, or even 2008. The true conundrum is that many feel they HAVE to own VMware shares and the true free float is less than that 37.95 million shares and is small enough that literally a few million shares bought each day could continue running this up regardless of what you want to list a forward P/E ratio or a forward revenue multiple.
Jon C. Ogg
August 22, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and does not own securities in the companies he covers.
This would have been a great story to cover any normal day, but if you have been following the trading sessions in the stock market you know times aren’t normal. Citrix Systems (NASDAQ:CTXS) made an acquisition in the virtualization space by acquiring XenSource for for approximately $500 million in a combination of cash and stock, which includes the assumption of approximately $107 million in unvested stock options. Citrix expects the virtualization of desktops and servers to reach $5 Billion over 4 years, and other.
EMC Corp. (NYSE:EMC) made its buyout of VMware (NYSE:VMW), which was the huge IPO Tuesday, for some $635 million in a deal that was completed in early 2004. The value of VMware and the market penetration is far better, and right now it seems that the market is treating the XenSource buy as a ‘me-too’ acquisition trying to catch a fad (although virtualization won’t be a fad). With Microsoft (NASDAQ:MSFT) coming out with its own virtualization soon and with another competitor named Virtual Iron and others out there it seems like the space may get treated as crowded before it gets to even go mainstream. We gave in our special situation investor newsletter subscriber service (sample now unembargoed) our playbook for capturing the downside in EMC right for after the IPO and that now seems to have mostly played itself out.
XenSource was VC-backed with a total of $41.5 million raised. Virtual Iron was VC-backed, but also had Goldman Sachs (NYSE:GS) and Intel (NASDAQ:INTC) as investors. VMware announced that Intel (NASDAQ:INTC) and later Cisco Systems (NASDAQ:CSCO) had each taken stakes before the IPO, but those were much larger investments with Intel putting in more than $200 million. VirtualIron’s investment in 2005 was led by Intel with a whole group placing $8.5 million and an option for $2 million more with a strategic go-to-market partner.
The industry pricing is roughly equal to the capital raised with VM’s Virtual Infrastructure running over $5,000 (and on up and up more) and XenSource running under half that for starters and then with VirtualIron running less than half again. Being a lower cost provider works if you can out sell and out-partner a competitor, but only if you have more realistic goals and expectations. Beating EMC at this is going to be more than tough even at its competitive pricing.
Symantec (NASDAQ:SYMC) also owns Altiris, which is also a virtualization package. Intel has also dabbled in another virtualization player called SWsoft in 2005 and Intel also invested in VirtualLogix in the same space this June. Oracle (NASDAQ:ORCL) seems like it is not in the fray here, so it might not be a shock to see them either make investments in these companies or buy one to see what it can do so it doesn’t cost billions in a few years.
You would think with the VMware IPO success that Citrix Systems would be viewed better, but maybe they are paying too much for too little and too late. Even at the end of the day when the market went from -300 to positive before a slight down close, Citrix shares still closed on the downside by about 1.5% at $31.79. It closed down roughly 1.5% on Wednesday as well, and that was the day the deal was announced. Its 52-week trading range is $26.10 to $39.77, and looking at the trading shows a chart that seemingly wants to act a weaker than the market regardless of direction.
Jon Ogg is a partner in 24/7 Wall St.; he is the publisher of the 24/7 Wall St. Special Situation Investing Newsletter and does not own securities in the companies he covers.
VMWare’s (NYSE:VMW) Long awaited partial spin-off and IPO from EMC (NYSE:EMC) has finally made it out to market. Indications out of the chute were originally $38.00 to $41.00 after a $29.00 pricing. But indications went higher and this one took roughly 30 minutes to open from specialist indications. The 33 million share float might as well be considered 37.95 million, because it is a shoe-in that the underwriters will take that 4.95 million share overallotment.
Indications later reached closer $50.00 for the opening price at 9:55 AM, and then the indications were showing a $52.00X$53.00 indication. It looks like a $51.25 level was the open price, but that only lasts for a second. Shares have now traded over 7 million shares.
The underwriters could have easily hit our targeted $30.00+ pricing, but decided to leave some juice in it witha $29.00 pricing.
Jon C. Ogg
August 14, 2007
EMC Corp. (NYSE:EMC) has finally done it. The VMware (NYSE:VMW) partial spin-off and initial public offering has priced. On Monday morning we gave a projected pricing of $30.00+. We were close, but it priced at $29.00 per share. The original $23.00 to $25.00 got bumped to $27.00 to $29.00 for the same 33 million shares. Go ahead and just include that 4.95 million share overallotment being exercised, because this IPO is highly likely to open at a premium to a large premium.
Here is the critical issue: The company could have literally sold as many shares as it wanted. In fact, I’d bet all the tea in China, all the corn in Iowa, all the cactus in Mexico, and all the desert sand in Africa that EMC could have sold off the entire VMware company IF IT WANTED TO. It doesn’t want to, and it will be a while before the company starts to unload some of its holdings. EMC doesn’t want to do that, and they have been quite consistent and adamant about holding 87% of the company post-IPO. Because of a class B stock, they have almost the whole vote. They didn’t want to sell more shares because EMC believes there is more juice to this IPO.
So we did not quite get our $30.00 price or higher, even if this priced at the top of the already raised range. But what you can bet on, barring a monster crash in the stock market, is that this will have a premium opening. Maybe a very large premium. This pricing was a bit surprising, but the company still owns so much unregistered locked-up stock that it actually makes a lot of sense for EMC not to take all the juice out of the VMware share performance on the first day. Back in June, we predicted a ’second week in August’ for starters on this pricing.
What will the premium be? Well, TheStreet.com used a $60.00 possible figure. Here is what Jim Cramer said on CNBC’s MAD MONEY on Monday regarding his opinion on EMC: "People thought I was an idiot. But you know what? Stocks don’t always tell the truth in their direction. I think it goes to $23. It’s not too late to pull the trigger." If this opens at $60.00, well all bets are off. In fact, we noted that at $60.00 or anywhere close right now, that this would mean the wheels have been ripped off the looney wagon. EMC closed up 7.5% at $19.05 on double normal volume, and it looks like it proceeded to trade up another 1.4% to $19.32 in after-hours trading.
We are sending out the EMC-VMware playbook for the special situation investing newsletter subscribers in the morning, mostly on how it pertains to EMC stock and how to value it. Congratulations EMC and VMware. Now the rationale will be back in the stock here after tonight and tomorrow. Stay tuned.
If you don’t know much about virtualization, you better read up on it. It’s going to be THE next big thing for 2008 and beyond. Those cheap dual core and quad core processors and cheaper and cheaper DRAM modules are finally turning theory into mainstream.
Jon C. Ogg
August 13, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
Unfortunately, because of the volume of emails on EMC & VMware we won’t be responding to individual emails on the IPO for a few days.
EMC’s (NYSE:EMC)partial spin-off of VMware (NYSE:VMW) in the long-awaited IPO should price later today for a Tuesday pricing, although some reports had indicated a Monday trade over the weekend. As of 9:10 AM EST, the properfilings were not in for a trade today and even though that can change Tuesday should be the day. EMC shares are up 4% in early trading.
Based on the brokerage community commentary and based on the flurry ofinquiries and activity from readers here and at other onlineinformation services, this should get a premium pricing. We had beenwondering why EMC itself in employee exchange offers had not ratchetedthe price range up a few weeks ago. The demand is here from retail andfrom institutions and this "virtualization" trend is something you aregoing to hear a lot more about.
By all the looks of it, VMware couldprice well north of $30.00 per share. A $30.00 per share pricing wouldgive this roughly a $10 Billion market cap, but keep in mind that sofar only 33 million shares have been committed and EMC is going to hold 87% of the stock even after the IPO. It is probably a safebet to assume the 4.95 million share overallotment will be exercised. Jim Cramer on TheStreet.com has predicted as high as $60.00 per share on VMware,giving it a market cap in the vicinity of $20 Billion all said anddone. If this prices up that high it would be more than shocking andwe’d think the wheels of financial rationality had come off the crazymarket bandwagon. But nonetheless, this could well price north of the$27.00 to $29.00 higher revised range. We don’t yet have any ratios, but theshares have been inquired about to death and this was unofficiallyoversubscribed before the roadshow even kicked off last month. This could easilyprice north of $30.00 and it would be a surprise if it didn’t. A major market tank can trim some demand, buteveryone wants in this IPO so don’t be shocked if it indicates higherand higher.
We’ll be sending out a more detailed pricing and playbook for this tonight for our special situation investing newsletter, but we want to warn that if it prices intraday then it will create some exacerbated reactions potentially both ways.
We expect at least one or two more "virtualization" companies willfile to come public in the next few weeks to months based on thestrength here. Look at the backers of one competitor. Here were the employee conversions from last week and it almost seemed as though some of the employees were holding out. The last amended prospectuslisted Citigroup, JPMorgan, Lehman Brothers, Credit Suisse, MerrillLynch, and Deutsche Bank in the syndicate cover; although there weremore co-managers previously listed in this and that may just be anabbreviated group.
Jon C. Ogg
August 13, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
The upcoming and heavily anticipated partial-IPO of EMC Corp.’s (NYSE:EMC) VMware (NYSE:VMW) just saw the stakes of poker go up. The company has hiked the IPO pricing range for next week from the original $23.00 to $25.00 to a new and higher range of $27.00 to $29.00 for some 33 million shares (plus the 4.95 million overallotment option). After the partial-IPO, EMC will still own close to 87% of the stock and will have roughly 98% of the votes because of the dual class of shares. Underwriters in the amended prospectus are Citigroup, JPMorgan, Lehman Brothers, Credit Suisse, Merrill Lynch, and Deutsche Bank.
If you look at some of the competing interests in a competitor called VirtualIron, it’s probably safe to assume that this higher IPO price will also spawn another public company competitor in virtualization software sooner rather than later. This also adjusted the terms for the employee conversions per the SEC Filing, after we were wondering why some employees had not responded or were holding out to the previous option and restricted stock tender. The new VWAP price range for employees in the filing shows a $26.00 to $30.00 range for some added leeway.
So far, this is not helping EMC’s stock today, as shares are down more than 2% with a crummy market. With all of the hype in recent weeks, this price hike should have also been mostly expected. We’ll still be sending out a playbook to subscribers of our Special Situation Investing Newsletter for EMC and VMware in the hours ahead of the IPO next week. The stock market getting killed isn’t a help and the timing of this couldn’t have been much worse from EMC but there is also some of a ’sell the news’ going on.
If you keep reading about Virualization in PC and computer land then you’ll know why the demand is there and why the price got bumped up. This could now end up with a perceived value of closer to $10 Billion on a fully diluted basis, although keep in mind that this is a very small amount being sold and as of today EMC is not planning on spinning shares off to EMC holders and has not given any plans that it wants to sell more. Except for the fact that cheaper DRAM and multi-core processors taking virtualization farther and farther into mainstream, nothing else has changed other than the total market opportunity becoming much larger than originally estimated.
Jon C. Ogg
August 9, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
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