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Which Company Is Worth More Overall: Adobe or VMware? (VMW, ADBE, EMC, CTXS, MSFT)

247wallst — Wed, 19 Sep 2007 11:57:40 +0000

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:

VMware showed its financial filings of its second quarter on Monday (which were already mostly known), and the results were $296.8 million in revenues (up almost 90% over Q2 2006) and earnings rose over 100% to $34.2 million, or $0.10 on an EPS basis.
Adobe’s earnings which were not previously known also came out on Monday. The company posted profits of $205 million, or $0.45 EPS on a non-GAAP basis, on revenues of $851.7 million (up 41% from the same period in 2006). The company did already acknowledge that its growth rates would slow in 2008 because it acknowledges that some growth rates are sustainable for only so long.

Market Cap Comparisons:

Based on a 332.5 million share count on VMware and a $77.50 stock price, we get a $25.768 Billion market cap. The calculations on the true share count create different market caps around the web: Yahoo! Finance lists $25.78 Billion as the market cap, Google Finance lists the share count at 382.94 million and gives it a $29.68 Billion market cap, MarketWatch lists the shares outstanding as 375.12 million and gives it a $29.07 Billion market cap, and AOL Money & Finance severely undercounts the shares ate twice the free float so its market cap is only listed as $5.82 Billion.
Adobe calculated on Monday that for the coming quarter, its share count will be 588 million to 590 million. Lets split the difference at 589 million and with a $43.50 stock price we get an implied market cap of $25.6215 Billion.
If you want to compare other desktop and server software companies and the market caps, here goes: Citrix (CTXS) $7 Billion; Symantec (SYMC) $17.5 Billion; Intuit (INTU) $9.9 Billion.
The actual market caps on an exact basis is not the important part of this. The most important part is looking at the comparison of how close each market cap is to the other.

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.

The truth is that Adobe is going to be a business and consumer winner either way. Its products work regardless of whether a computer is running on Mac, Windows, or Linux. Its Adobe Acrobat is on every single owner’s PC that I know, while virtualization programs are still on very few. Will it grow anywhere close to VMware or to virtualization? No, not even close.

There is no slam or slight of hand we’d want to throw out against VMware and its virtualization explosive growth. It has already exhibited that it will pay for companies tied to virtualization because it made an acquisition at its VMWORLD CONFERENCE after being public for less than one-month.

Even though VMware has competitors trying to play catch-up, it seems that their place it set as the leader so far. But the shares are priced for perfection and as though they will be the only defacto standard. It has all the right partnerships and alliances, but it also costs more to purchase by far over competitors like Citrix’s (NASDAQ:CTXS) soon-to-be unit called XenSource that it is buying or compared to a far cheaper player called Virtual Iron (which is backed by Goldman Sachs, Intel, and SAP) and even Microsoft getting into the virtualization game you have to wonder if a super-mega-premium is priced for too much perfection. One analyst even holds a $90 target on VMware now.

Because of the low float, there is a larger chance that VMware shares could run up or down far faster than would otherwise exist in say Adobe or other software stocks that running on desktops, servers, and mainframes. Obviously investors pay for growth, and they pay a big premium for it. But this comparison may be more relevant through time.

VMware Already Looking Out To Its Next Conferences (VMW, EMC)

247wallst — Thu, 13 Sep 2007 17:55:07 +0000

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, Already An Acquirer (VMW, EMC)

247wallst — Tue, 11 Sep 2007 08:20:17 +0000

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.

VMware Rides Its Own Waves (VMW, EMC, MSFT)

247wallst — Mon, 10 Sep 2007 12:27:09 +0000

Shares of VMware (NYSE:VMW) are up over 3% today above the $72.00 mark. Today marks the intro for the widely anticipated VMWORLD 2007 CONFERENCE.

The company issued four press releases this morning alone and we’d expect others to be making partnership and general press releases around this conference. The main expo will run from tomorrow through Thursday, so press releases around the terms "VMWORLD" and "Virtualization" should be many. Many of its competitors and partners have released data ahead of this conference as well, with many stories coming out last week. Microsoft (NASDAQ:MSFT) made its noise in the virtualization game last week, although it received very little coverage on a relative basis.

We noted Friday how the Goldman Sachs note on EMC (NYSE:EMC) had punished shares of both companies, and it had little chance of seeing any great reception as the market was so negative Friday after the jobs numbers.

As a reminder, VMware’s stock post-IPO high is $73.95.We have noted this ongoing VMware conundrum that exists around the VMware-EMC ties, although that may take a backseat position with this conference being this week.

Jon C. Ogg
September 10, 2007

Jon Ogg produces the 24/7 Wall St. subscriber-based SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.