4 Comments

I like the upside here. I think applying 25x is rich when revs growing slower. I understand earnings can and likely grow faster in next couple years but maybe not next 5-10 years. Can it trade at 25x? Maybe but to me that is a ceiling for me, and I would expect a little lower in upcoming years.

But I like the company given MSFT essentially leaving the space. Another risk, which is essentially what you noted of MSFT deciding to stay in and put capital to work in the space, is MSFT selling to 3rd party who does same thing. That seems more likely than MSFT flip flopping and deciding to remain in this business.

Great write up and I expect new highs upcoming. I got in this one recently.

Best

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"I think applying 25x is rich when revs growing slower." My thinking exactly. 25x is almost Mag7 level. Also, should there be a downturn in tech bubble stocks, that downturn will inevitably take the company down with it, no matter what the implied undervaluation is. My point is that the valuation scenario presented has many optimistic assumptions built in, my base case would be way more conservative than that (also last week's price action post-earnings indicates the market is way more skeptical).

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Of course - valuation could always come down. I'm going to explicitly add that as a risk in my report. 25 PE is my base case, but the multiple could be higher or lower.

Sure you could argue that it's too high. But remember that multiples are usually assigned primarily according to factors such as growth rate, revenue stickiness, margins, market dominance, runway, and so on. I think CXDO will continue to present a high quality business and deserves a good multiple. Just my opinion, and you're of course welcome to use whatever multiple you like.

I won't comment on last week's price action. It's too early. Quite likely pushed down by traders. Let's see how the price develops over the next month.

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I do support your thesis regarding market dominance. Currently it is not the dominant player with MSFT leading and the #2 player both easily dominating CXDO. But MSFT is leaving and other I think is too, thus CXDO is poised to accelerate growth and become #2 or #1 assuming the others just dont sell their business, which I would if I were them. Probably just a distraction from core business anyhow.

So when that happens I can see a premium multiple, I just wouldn't make it my base case. Disclosure: I am older and tend to be more conservative. Less negative surprises that way. But I can see a world where it happens but as I noted before that would be my high case. So I see the possibility. Appreciate the discussion.

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