Reading Dave’s post on MySQL’s IPO range of $600M – $1B, I started to wonder what type of revenue we’re talking about.
If you have access to IDC’s massive pivot table with Software Vendor revenues (license & support only – services are excluded) split across the 100+ software markets they cover, you can follow along. I can’t use the actual figures because I’d get in trouble with IDC’s copyright office.
But, if you take IDC’s estimate of 2006 Microsoft revenue in the operating system market and divide that by Microsoft’s market cap you get 5.3%. If you do the same for Red Hat, you get 5.8%.
Next, take IDC’s estimate of 2006 Oracle revenue in the DBMS market and divide by Oracle’s market cap and you get 7.5%
A lower % means $1 of revenue drives a larger market cap than for a company that has a higher %. If market caps were strictly tied to revenue, you’d see an equal % across all companies. This isn’t the case because market caps are driven by current revenues, expectations of future revenues, brand, cash on hand, the cuteness of the company logo, and phase of the moon.
In any case, if you use $800M as MySQL’s projected market cap (in the mid-range of their IPO range), and the ratios calculated above, you get between $40M and $60M in 2006 database revenue (from licenses & support).
Not chump change (driven by a 747 vs. Toyota approach).
What’s that Zack? Dinner and drinks on your tab? :-)
06.26.07 at 1:05 pm
Mike Olson from Oracle asked a question over at InfoWorld. I replied and figured readers here would benefit from it also, so here’s the relevant portion:
First, I started with that approach, but taking Microsoft or Oracle’s 2006 revenues divided by their respective market caps resulted in 13% & 14% respectively. Applying these to an estimated $800M IPO target for MySQL would suggest 2006 MySQL revenue of $110M. That just seemed wrong.
That’s when I tried to compare Microsoft’s operating system revenue to market cap with the similar figure from Red Hat. As you’ve noticed, they were virtually the same (5.3% vs. 5.8%). This could be a complete coincidence. It could also be that the “efficient market” is valuing Microsoft’s operating system revenue and Red Hat’s operating system revenue in a near similar fashion. If this is actually the case, I figured MySQL database revenue would be valued in the neighborhood of Oracle’s db revenue.