's Big-Figure Deals Are Misleading

| About:, Inc. (CRM)

Having written an article on how's (NYSE:CRM) deferred revenues were misleading, I found that another thing is being used to promote the long side of this story. These are the 7 and 8 figure deals (as well as a singular 9-figure deal).

Again, using Seeking Alpha's transcript of the call, we see these comments by CEO Marc Benioff:

Now during the quarter, we closed more than 4x the number of 7 bigger transactions than Q4 of last year, including the largest transaction in our history, which was quickly usurped by another transaction that I'll soon mention. In all, we signed more than 100 7-figure transactions and 9 8-figure transactions in the quarter. And as I've been foreshadowing, I'm thrilled to announce that since the closing of the fourth quarter, we've already topped ourselves by signing our first ever 9-figure transaction in the opening days of Q1.

Now, while on deferred revenue an explanation was offered that dispelled the entire acceleration of the measure, here nobody did such a thing.

It so happens, however, that he same thing that inflated deferred revenue was present here as well. Let me explain. If you go from billing on a 6 month basis, say $500k, $250k per quarter, to billing on a yearly basis, you end up billing the same $1 million to that customer, but suddenly it becomes a 7 figure transaction, even though there was nothing new about it. And obviously, some of the 7 figure transactions become 8 figures. Hence the amazing growth in the number of big figure deals.

Indeed, if these deals really had something new about them, growth in revenues and deferred revenues would have to be much higher.


This continual use of policy changes, added to the over-reliance on non-GAAP measures and the general pumping nature of the business in light of questionable GAAP performance and ongoing dilution of the shareholders constitute rather large red flags regarding Add to this an EV/EBITDA running at 150+ and it's really truly amazing that this stock continues to float in the clouds.

Disclosure: I am short CRM.