How to Find the Next $100 Billion Software Company

The first step to identifying the next $100 billion software company is figuring out the fundamentals needed to support such a valuation. On average, investors will pay a multiple of 18 times price-to-earnings to own stock in a large, well-positioned software company. That means the company needs to yield about $6 billion in net income. Adding back taxes, at an average 25% tax rate, yields $7.5 billion in operating income. Software names have pretty good operating margins—around 30% on average at scale—so the magic number is around $25 billion in annual revenue. Here’s a simple equation with round figures:

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The Internet of Things and the New Industrial Revolution

A factory-floor robot tasked with filling peanut butter jars is on the fritz. The manufacturer dispatches a technician by plane to figure out what’s wrong. But until she is on hand to identify the problem and prescribe a fix, the peanut butter idles on the assembly line, delayed on its way to market. What if that same technician could diagnose and repair the robot without ever leaving her office? And what if, a week earlier, the robot had let the technician know that it needed maintenance?

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