Salesforce.com (CRM) bulls point to the company's huge pile of cash and investments as a source of flexibility and strength for the future. In articulating my short thesis on the shares, I have argued that there are limited potential productive uses for this cash. If yesterday's deal to purchase land for the company's new corporate headquarters is any indication, I am correct in believing 1) that there aren't many good uses for this cash and 2) that management cares little about shareholders' interests.
For those who missed the news, CRM announced yesterday that it has acquired 14 acres of land in San Francisco on which it will build its new headquarters. The sticker price? $278 million. Consider that figure for a moment. This is a huge number, and it does not begin to include the construction costs to develop the site. I do not profess to have any idea what it might cost to build the new buildings, but if this deal is any indication, Salesforce management feels totally free to spend shareholder dollars indiscriminately. I do not claim to have specific knowledge about the land that CRM purchased, but I do know that it purchased it from professional real estate investors. Say what you will about the competency of CRM management, but the team is not filled with real estate gurus. It's hard to imagine that the company got the best deal it could. Last time I checked, there is lots of high quality office space available in the Bay Area that does not require a $278 million outlay for undeveloped land.
I would like to preempt some of the criticism that is sure to come from the bulls. I anticipate that they will argue that the new corporate campus built on this land will give the company an advantage in attracting new talent (the company makes this point in yesterday's press release). As I've pointed out in earlier musings, CRM already pays its salespeople well, and it will continue to attract high quality talent so long as it does so. I think that the building is a secondary or tertiary concern for prospective employees, far less important than the level of pay.
I am sure that bulls will also point out that members of management are shareholders, so they have little incentive to spend the company's cash imprudently. Those who argue this are ignoring the fact that several members of the management team have been aggressively selling stock for quite some time. That's not the vote of confidence I would want to see if I owned these shares. There are plenty of other counterarguments that the bulls will hurl in my direction, and I am happy to address them as they come.
I will conclude by asking one key question. Does anyone genuinely believe that the company will reap at least $278 million of benefits from this acquisition? Keep in mind that CRM has said it has no plans to develop this property, so the new corporate campus will only come into existence well in the future and after considerable additional spending. It's difficult to imagine that shareholders will realize commensurate benefits from this deal even on an undiscounted basis. When we model out the incremental profits that CRM will have to earn far in the future to justify this spending today, the justification goes from questionable to highly dubious.
True, Salesforce.com's pool of liquidity can be an asset for shareholders, but management does not seem to have any interest in making it such. Rather, it seems focused on turning the liquidity into a high-price playground for itself.
Disclosure: Author is short CRM