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

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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.