“It’s a crowd-source based database for company information,” says a proud Salesforce (CRM) in their disclosure of the Jigsaw acquisition.
But it’s also a wonderful way to fudge their earnings for this fiscal year.
How do I come to this conclusion? As a result of Jigsaw, for the 9 months to Jan 2011, GAAP EPS for CRM goes down from 47 cents to 35 cents, or a fall of 25%. Pause. A $10 billion company acquires a database for $142m (1.4% in market value) and earnings for the period decline by 25%.
Alarm bells start ringing.
I have very little doubt that this little piece in CRM’s jigsaw is being used to fudge earnings, simply by the sheer quantum of the earnings decline. Salesforce has been on a herculean sales drive promoting its anchor status in the cloud. This no doubt has cost a fair buck. And all that promotion has yet to deliver on sales.
You have to give credit where it’s due. The company is a prodigy at marketing itself. They’ve used Jigsaw to lower the earnings bar significantly. And yes, there must have been a tiny improvement in sales with the recent advertising binge. No doubt at the next earnings disclosure, a slight raising of the bar will be trumpeted for all to hear.
Wait, say the CRM fans. You refer to the GAAP numbers, whereas the fall in non-GAAP figures is much smaller. Sure it is, the main difference in the two being stock based compensation. And as an investor, issuing shares to employees is a very real cost to my shareholding - it dilutes me each time and every time. Make no mistake, GAAP earnings is what counts to the investor.
On a GAAP basis the P/E to Jan 2011 on the revised EPS now stands at 177 ($84 divided by 48 cents). Admittedly, you are in the cloud CRM, but your valuation is way beyond the cumulus and far out into the stratosphere.
Digression: Jigsaw on a stand alone basis, at $142m, is worth $35 per company on their database. ($35 per company, that’s probably listed in an infinite number of places for free already. Wow.)
Disclosure: Short CRM, at my expense for now.