Apps & Software

VMWare (VMW) Could Fall 50% Further

VWWare (VMW) lost about a third of its value on a disappointing quarterly report. The stock is now down to $56, near a 52-week low and off a period high of better than $125.

The pricing of the company’s IPO last year was $29, and that is probably closer to the real value of the company. That would move the firm’s market cap from its current $22 billion to just over $13 billion.

Fourth quarter revenue at VMW was $412 million, up 80% over the same period a year ago. GAAP operating income was $76 million, a 19% operating margin. At this point VMWare trades about 14x its revenue run rate.

In the last quarter, Microsoft had revenue of $16.37 billion. Operating income was $6.48 billion. That is an operating margin of almost 40%. In its core software businesses, Microsoft has operating margins higher than 60%.

Wall St. would argue that Microsoft is not growing as fast as VMWare. That is true, but VMWare is facing competition in it virtualization software business. It is the lead, which should command some premium.But, Microsoft actually has only modest competition in its operating software operations. Their business in that arena is also probably less likely to be hurt by recession or a major competitive threat.

Microsoft’s multiple of revenue is about a little over 5x. Should the difference in revenue multiples be so great between the two firms. Almost certainly not. Could VMW’s growth rate give it a 7x or 8x figure? Probably. That gives the stock a value of about $30.

Douglas A. McIntyre

Are You Ahead, or Behind on Retirement?

If you’re one of the over 4 Million Americans set to retire this year, you may want to pay attention. Many people have worked their whole lives preparing to retire without ever knowing the answer to the most important question: am I ahead, or behind on my goals?

Don’t make the same mistake. It’s an easy question to answer. A quick conversation with a financial advisor can help you unpack your savings, spending, and goals for your money. With Zoe Financial’s free matching tool, you can connect with trusted financial advisors in minutes. 

Why wait? Click here to get started today!

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.

AI Portfolio

Discover Our Top AI Stocks

Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.

You can follow him investing $500,000 of his own money on our top AI stocks for free.