eMailbag Monday: Paul Allen, Cisco Disco, Toolbox Tales

First reader up writes:
“Thanks for the best web site and the most sensible stock coverage out there.
It is due to you that I achieved close to 500% in 10 months. Quick question if you have the time. I now have the need to trade 15000 to 25000 dell, amzn and the likes. However at DATEK the biggest number of share I can trade at anyone time is 5000, therefore I have to enter the same order 5 times to buy 25000 dell shares.

Reply: Glad you found the info beneficial. On the trading sites that’s not really our mantra. I’ll let the readership email me and tell their thoughts on share trade size. Readers?

“There is an article in Forbes about using a cable modem to lease computing from the Web, disk space from the Web, etc. This would make Microsoft and the PC makers obsolete.”

Reply: The model seems to be shifting to server-based applications and functions. But Microsoft and the PC makers have considerable leverage, cash and distribution to buy into the shift. Obsolete is a big step and maybe premature. “Paranoid” may be a better term for how the leading PC firms should feel.

Yale Checks In

“Steve Harmon, definitely required curriculum!”

Reply: Last time I checked I was not teaching at Yale 😉

New Metrics

“I appreciate your comments of valuation measure (see Feb 23 Morning Report) and I share some of your views having spent a considerable amount of time in the wireless industry where it was common to value “pops” until companies turned cash flow positive and one could look at EBITDA, and today in some cases earnings.

But all of these were short-hand for a fundamental business model of Discounted Cash Flow analysis where somebody had to take population projections and demographics to determine market demand and market penetration based upon reasonable take pattern predicated on prior new technology entries to the market place.

This demand info was then converted into revenue forecast and expense forecasts based upon required margin assumptions and a free cash flow forecast was arrived at that was then discounted at a usually cost of capital to reflect the high equity content in the cost of capital and the speculative equity risks of the venture.

This is what most analysts presented for their valuations and the short hands developed as a means of reflecting in laymen’s terms where relative valuations were. Thanks for the opportunity to comment and I look forward to continuing to read your work.”

Reply: All the metrics I mentioned (value/users, revenue per bandwidth, etc.) are ways to gauge a firm’s ability and efficiency in producing earnings ultimately and to see if investors have discounted this efficiency into the valuation.

These new tools go hand in hand with cash flow analysis, they identify things that are Internet-only and ways to quantify them.

We measure space travel, for example, in light years. The concept was necessary to help understand the different scale of the universe.

So, in evaluating value-per-page view, and the more than dozen new ones mentioned, it’s a new metric for a new medium, a scale that generates new results. But the centerpiece is revenue/earnings, that’s what the metrics point to from several angles.

Cisco Kid

“I own CISCO and although its got everything going for it…it’s not a mover.”

Reply: I think Cisco (NASDAQ:CSCO) has a lot going for it as a core Internet stock. The problem is that everyone knows about Cisco, it’s a $100-plus billion market cap.

It’s A Wired War World

“Steve: Paul Allen/Microsoft partner/owner of Charter recently bought Marcus Cable, which is a TV & expanding cable internet provider. Do you think he will buy Cox Communication in the near future? Is he starting to put together a major Internet muscle for Microsoft to compete with ATT&T – AT Home-Excite scenario.

Buying Cable companies that use @Home gives him instant access. By using Allen’s companies the monopoly issue may be avoided?

I search for your articles everyday. They are always on target and well grounded and easy to understand. Your Monthly newsletter will be the only one I will need. Looking forward to my first issue.

Reply: I think Paul Allen invests for Paul Allen. He has interests in Web assets that compete with Microsoft and his Vulcan Ventures holds several investments that are aimed at being market leaders.

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