VMWare (VMW) looked good out of the box. After its IPO, shares went from under $52 to over $125. But, as the stock hit $84.60 today, one-third of the peak value of the company was gone. And, it took less than ten trading days to kill almost $15 billion in market cap.
What happened? The drop in big tech Nasdaq tech stocks has not helped. When it moved over $125, it has a PE of over 200.
VMWare is growing fast, but maybe not fast enough to support a company value of well over $40 billion. In the last quarter, revenue was only $357 million, which was up 88% over the same quarter last year. EPS tripled to $.18.
Buried in the company’s "risk factors" is the note that Microsoft (MSFT) is competing with VMW in the entry level portion of the virtualization business and that Redmond is planning to go after the larger enterprise end of the industry as well.
Microsoft may not do everything right, but it is willing to spend billions of dollars in markets that are important to it. Even VMWare does not have that kind of money.
Douglas A. McIntyre
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