Why Shorting VMware is a Mistake

| About: VMware, Inc. (VMW)

I am still trying to understand the assumption behind the shorting crowd's continued insistence and pretension that somehow VMware's (NYSE:VMW) stock is about to implode.

From a basic analytical stand point: VMware, the hottest initial public offering since Google (NASDAQ:GOOG), hits the market August 14th 2007 after feeding the street with staggering growth numbers. VMware's financial results to date have been nothing short of impressive. Revenue-wise the company posted in fiscal 2003 revenues of $100 million, followed by $218 million in 2004, $387 million in 2005, $709 million in 2006 and $704 million in 2007. Lastly, 2008 projected revenues stand at $1.2 Billion and could even push to $2 billion by end of fiscal 2008. In other words, there is no denying of this company establishing itself as a rapidly growing cash flow machine besides its compelling growth prospects.

In the midst of the subprime debacle, falling stock prices and market volatility this last correction, shares of VMware still jumped to an impressive 76%. Its market valuation rose to $22 billion in just two days alone. Stock recently reached new highs of $80.15 giving VMware a $26.17 Billion market cap and making it the second biggest Silicon Valley-based software company valuation-wise.

Based on these facts, are shorts then selling this company on grounds of weakness? I would argue that approaching VMW from a shorting perspective at this point is naive. Nothing against the shorting crowd. I am only trying to find out how objectively we can establish a baseline valuation for this company and come to the conclusion of implosive prospects when every inch of VMware' structure and its current revenue trajectory only projects growth.

Disclosure: Author has a long position in VMW

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