Salesforce Likely To Be Below $15 By Year's End

In customary style and panache, Salesforce.com’s (CRM) founder, Marc Benioff, evangelised the virtues of the new alliance with Facebook. “A paradigm shift in the way consumers and commerce will interact in the future.” 

'Paradigm shifts' have one nasty drawback: the shifter usually ends in the garbage heap. CRM has surprisingly managed to keep its share price above 30 in this equity meltdown, the only rationale being its cashflow (the pe of 100 simply could not have survived this carnage). But that cashflow does not account for all the shares they issue to staff (it actually adds to cash) to retain them, in lieu of normal salary.  Well, now most of the recent options are under water (price down about 40% ytd and falling) we'll see how secure their people are, and how much more old-fashioned salaries they have to pay and that will filter, in the old-fashioned way, through the income statement.  

Force.com is wonderful for young trendy software people who cant get into the mainstream, who cant pay all those licensing fees for software that is vicariously at hand via the Force platform, but how many applications will be commercialized? Its laughable, they tout their new alliance with facebook and its 127m users - tell me dear bend-my-ear-off, how do you propose to convert facebook into commercial dollars, have you any idea what facebook people do and do you think they are willing to pay for it!!! Sure, I’m going to click on an ad banner on saddles when I use the word “horse” on a message to a facebook friend. After all, I was talking about horsing around! 

CRM shareprice will be below 15 by year end. I'm banking on it!

Disclosure: Short CRM

Comments

[robertf97:]

I agree. There is a lot of historic evidence of companies with this type of hype not delivering. I don't know what goes through someones brain when they buy a stock with a 100+ PE ratio in this kind of environment.

2008 Nov 07 08:36 AM

[andyn:]

I agree their P/E is pretty high.... but so far they had the growth rates of over 50% to sustain it.

But in the coming months, growth rate should slow both because of law of larger numbers and a recession.

The only question is by when it would be cut in half to $15....
I think it would take atleast next 2 earnings release to do that.

2008 Nov 07 08:59 AM

[Thomas J. G...:]

I would argue even if Force is very profound the stock is still overpriced. I tend to agree with Sunil that Force is not that profound. Sunil makes a good point about saleforce.com. You can see they are always trying to cuddle up to the sexiest (also high p to e) parts of the web. google, facebook, ... even though the real business value may be negligible. I think they're good at stock promotion. I don't know about 15 but I say teens after the earnings announcement. It's a decent company, I think they'll be around, but I don't think they deserve a 100 p to e.

2008 Nov 07 07:57 PM

[George K:]

The funny thing is this stock was overvalued last year at $40 and now its even more overvalued at $30. seekingalpha.com/artic...

I would agree, this stock is going down to 20s or less.

2008 Nov 10 01:11 PM

[Greg Weston:]

Good call. I am glad I read your article. I did some additional research and then went in short at around 28.

2008 Nov 21 09:51 PM

[User 318469:]

year is almost up and still in the 30s. How you like it now???

2008 Dec 12 03:59 PM