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   Technology StocksMicroStrategy Inc. (MSTR)


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To: Toby Zidle who wrote (586)12/2/2000 11:49:23 AM
From: Logain Ablar
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Toby:

You blased me back in June for warning people to stay away from this company and its stock. We'll the mo mo and new financing investors with the floorless made it almost triple from when I made my comments (who knew the company would be so desperate for financing) but we are back into the single digit range.

You selectively sited some of my comments to blankmind but for some reason excluded this one. Just my opinion but if I was looking to invest I'd look elsewhere and if I was holding I'd sell into any NAZ rebound or short rally covering

Once the NAZ reverses (and it will reverse again) this stock will be back in single digits and lower than its recent $9. Of course in the market we are in many stocks will be visiting the single digits.

Tim

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To: Carl R. who wrote (641)3/10/2001 11:31:04 PM
From: Area51
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It seems like the posting frequency on this thread is proportional to the stock price <g>.

businessweek.com

100 million in cash and no debt they should survive right?. And the PSR is down to 2.0 for FY 2001.
At some point does anyone think this is worth buying again??
Best Regards,
Area51

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To: Area51 who wrote (650)3/12/2001 2:30:40 AM
From: Carl R.
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I hadn't looked at this one in awhile. I note that the price is now close to my "target" value of $5. The balance sheet shows $93 million in cash, but of that $25 million is "restricted". I don't have time to look up exactly what the terms of that are. This leaves $68 million in cash. As for debt, they do have plenty, so I take issue with your statement that they have none. The biggie is that they almost $100 million in "accrued litigation settlement". That is a pretty good chunk, but again, I don't have the time to ascertain the terms. If it is due in the next several years it will be quite a burden. Even if it is to be paid over say 10 years, that would be $10 million a year, and perhaps would also bear interest. And then there is the $160 million in redeemable preferred. Normally on redeemable issues the company must repurchase the redeemables over some long period, say 10 years. Once again, I haven't looked up the terms, but if they have to pay them off over 10 years, that would be $16 million a year or $4 million a quarter. Thus if these items are both payable over 10 years, that implies payments of $26 million a year on top of any losses.

So let's turn to operations. Excluding interest, amortization, litigation settlements, etc, the core company had revenues of $58 million, and gross profits of $35 million. After deducting the still huge R&D and Marketing budgets, as well as G&A, they have an operating loss of $25.5 million. Let's assume that they are only marginally impacted by the slowdown in the economy and things get no worse. That would imply cash losses from operations of $100 million a year, and then perhaps payments on the redeemables and settlement of another $26 million. Given that rate of consumption of cash they could burn through what they have left pretty quickly. I think that their only recourse is probably to repay the redeemables with shares, which will of course immediately be sold, driving the stock price down.

Then let's look at book value. Total shareholders equity is -$145 million. After deducting the intangibles, the tangible book value is -$179 million, not a pretty sight. No, I don't think they will make it, though they will probably linger on for several more years. This balance sheet reminds me of AXC (with the exception of the litigation settlement). Over time the operating losses and redeemable payments in shares took its toll on that once great company.

On the other hand, I see that there are only about 5 million shares short out of 79 million outstanding, so this company isn't all that heavily shorted. Therefore it apparently isn't a forgone conclusion that they are doomed. I'm probably missing something so perhaps someone can explain it to me.

As for buying it "again", I've never owned it before, so I can't buy it again. The only order I ever put in was a short order at 240, and it didn't fill that day, and though I had more chances to short it again later at even higher prices, I never did.

Carl

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To: Carl R. who wrote (651)3/12/2001 10:53:07 AM
From: Area51
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Hi Carl,

Thanks for the detailed review. I would like to clarify that it was not I that said they had 100 million in cash and no debt but rather that was a direct quote from the businessweek interview. By the "is it time to buy again" question, I wasn't intending to imply that you had previously owned this company but only asking whether a significant increase in share price could be expected in the future such as they had in late 1999 to early 2000.

Best Regards,
Area51

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To: Carl R. who wrote (651)3/14/2001 10:03:09 PM
From: Logain Ablar
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Carl:

You better check out the terms on the debt before you think $5 is a good deal. The term floorless comes to mind. Of course the stock was around $20 during the deal and shot up to $60 before it was closed.

I'm actually surprised its still above $5 but its also probably time for the debt holders to run it up again.

Tim

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To: Logain Ablar who wrote (653)3/14/2001 11:51:48 PM
From: Carl R.
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Tim, I wasn't contemplating buying this stock at any price. I posted some time ago that I didn't think the stock was worth more than $5. Given that the overall market is much weaker than it was at the time of my post I think that the value I would place would be significantly lower today, but I have no intention of trying to compute a new value. I think that my answer that it wasn't clear to me that they would "make it" pretty much summarizes my opinion of the stock. I would presume that sales are already being hindered by their weak position, but the point may come where potential customers are afraid to buy for fear that they won't be around to support the products.

Saylor is quite a speaker, or so I've heard. Perhaps he will be able to raise more money in the future, or pull another money raising feat, who knows.

Carl

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To: Carl R. who wrote (654)3/31/2001 2:17:36 PM
From: Carl R.
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As we watch this company's stock price crumble, it provides an interesting learning opportunity. In order to show fast growth, they used some liberal accounting methods which later came back to haunt them as they were forced to restate earnings. But the problems ran deeper than that. It seems that they internally believed that they were really growing that fast and making money because their spending grew apace with the reported sales. R&D spending grew from $6 million in the 6-99 quarter to $16 million 3 quarters later. When revenues were restated that $16 million number turned out to be a whopping 32% of sales, almost 3 times higher than normal for a software company. Similarly sales and marketing expenses grew from $21 million in the 6/99 quarter to nearly double that 3 quarters later, which turned out to be 82% of sales, twice the industry average.

One interesting observation is that we tend to assume that when you invest in R&D and Sales expenses, those investments will produce growing revenues. MSTR thought they were growing much faster than they really were, and as a result they invested at a level way beyond the industry norm. Those expenditures apparently did not produce any excessive future growth. In March 2000, MSTR was out-spending BOBJ 2-1 on R&D, and out-spending them on sales expense as well, yet BOBJ at the time was 50% larger than MSTR and is now twice as big.

I expect MSTR will be an interesting case-study in business schools in the coming years. There is a lot that can be learned here, and my observations are no doubt merely the tip of the iceberg.

Carl

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To: Carl R. who wrote (655)4/2/2001 10:09:07 AM
From: Howard C.
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Excellent analysis. But let's not forget greed and the criminal (in my opinion) mindset of the CEO and his lackeys. Don't tell me that they didn't understand clear as day that you don't declare all the revenues garnered from a multi-year maintenance contract in the First year. The CFO surely knew that, and he is the Chief Compliance Officer too. Why isn't he behind bars? Besides the ones he drinks at.

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To: Howard C. who wrote (656)4/3/2001 10:03:54 PM
From: Carl R.
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I see that they refinanced the preferred stock, but I have no time to figure out if it is an improvement. At first glance it seems like a great deal for MSTR, but I'm sure that they preferred holders wouldn't have accepted it unless there is some hook for them.

Carl

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To: Carl R. who wrote (657)4/4/2001 9:06:25 AM
From: JMD
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Carl, when you do have the time, I'd appreciate hearing your thoughts on the MSTR refinancing of the preferred. thanks,

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