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  • Is The Market's Optimism About Justified? [View article]
    And it's a very competitive hiring market. No question that Salesforce's scale is increasing. But are the incremental hires going to make the company enough money to make back their compensation and contribute to the bottom line?

    Adding customers does not necessarily add economic value to the company, and may even detract from it. We see this with companies that grow too fast before their business model has been proven.

    I feel Salesforce had a proven business model as of about 2011. Now that it has expanded into Service, Marketing, Platform, Community and most recently Analytics, it is far from clear to me that they have a viable business model. In my estimation they are giving away the Marketing Cloud (net of customer acquisition and operational costs) because of competition. Analytics is priced aggressively and it will be interesting to see if they can sell it.

    For more details on the implications of Salesforce's diversification, please see this article I wrote:

    Rivals' clouds are gathering around Salesforce
    Mar 31, 2015. 01:45 PM | 1 Like Like |Link to Comment
  • 2 Mysteries [View article]
    In the event of a significant price drop, I expect a knock-on effect of employee departures. As you may know, Salesforce uses massive amounts of stock-based compensation. If the stock price drops, it's something like an instant pay cut for the employees with stock-based comp. And these tend to be high-value employees.

    This is another example of how the company is leveraged on the story of an ever-increasing stock price. That leverage also applies on the downside, where a price drop has a reflexive negative effect on the company.
    Mar 31, 2015. 01:17 PM | 4 Likes Like |Link to Comment
  • 2 Mysteries [View article]
    CustomerSat, I'm not seeing any improvement in GAAP earnings. GAAP EPS according to Morningstar:
    FY2011: 0.12
    2012: -0.02
    2013: -0.48
    2014: -0.39
    2015: -0.42
    That's a dramatic decline in GAAP earnings from 2011-2015.

    2016 guidance: -0.16. An improvement, but it's guidance.
    Mar 23, 2015. 12:45 PM | 3 Likes Like |Link to Comment
  • 2 Mysteries [View article]
    I've given some thought to the AMZN comparison and here is my perspective:

    AMZN has much more of a moat, with formidable retail business and customer base, Prime program and dominance of IaaS in cloud. The retail business is a powerful engine to fund long-term capital-intensive plays such as Amazon Web Services.

    CRM faces significant competition in all of its businesses and even its most successful product, Sales Cloud, has less than 20% market share. I believe Sales and Service Clouds are subsidizing investment in Platform, Marketing and Analytics, but Sales and Service Clouds do not have the same competitive moat as Amazon's retail business.

    So while CRM and AMZN share a philosophy of investing heavily in long-term plays with little concern for short-term EPS, in my opinion CRM's cash flow for future investment is much less of a sure thing. CRM is battling for share on all fronts with the likes of MSFT, SAP, ORCL and ADBE. (Even facebook is throwing its hat into the sales automation ring.)
    Mar 11, 2015. 11:19 PM | 1 Like Like |Link to Comment
  • 2 Mysteries [View article]
    501 -- thanks for several thoughtful comments. I happen to take issue with this one a bit. Buffett, Munger and Marks will be the first to acknowledge that Mr. Market is crazy and his price can differ wildly from underlying value. (It's in that delta that money can be made.) In your second para you use the word "worth" but I think you're referring to price, and it is crucial to note that what an incremental buyer or seller might pay on any given day (i.e. Mr. Market's price) is *not* a reflection of underlying value.

    Graham and Dodd: In the short run the market is a voting machine, in the long run a weighing machine.
    Mar 11, 2015. 11:07 PM | Likes Like |Link to Comment
  • 2 Mysteries [View article]
    As I mentioned above, I would also advocate deducting current capital lease payments from FCF since these are CapEx by another name. Nice FT article on Amazon's use of capital lease payments:
    Mar 11, 2015. 10:49 PM | 1 Like Like |Link to Comment
  • 2 Mysteries [View article]
    There are also capital lease obligations which do not appear on the balance sheet, including a huge multiyear lease of Oracle software. The 10-K notes state that the present value of capital lease obligations is $573 million as of 1/31/15.

    FT has a good article on the accounting treatment of Amazon's capital lease obligations:

    I've been thinking of writing a similar article about Salesforce. As FT is saying, a FCF calculation should deduct current capital lease payments as well as CapEx from operating cash flow. And it seems prudent to include present value of capital lease obligations as a liability even though it does not appear on the balance sheet.
    Mar 11, 2015. 10:45 PM | 2 Likes Like |Link to Comment
  • A Story With An Unhappy Ending [View article]
    Forward P/E using Salesforce's non-GAAP guidance is 103, using the current stock price.
    Feb 26, 2015. 10:07 AM | 1 Like Like |Link to Comment
  • Rivals' Clouds Are Gathering Around Salesforce [View article]

    I just found Marketing Automation apps here:

    The reviews for Pardot are favorable overall -- the vast majority are five stars -- but most of them are dated 2013 or earlier. Here is a negative recent review from someone who calls his organization "super Salesforce fans":

    === begin review ===
    Beware! This is NOT a full featured integration with Salesforce. "Trigger" based sends require just that - a programmer to build triggers, literally for every email. There is no automation integration.
    This may be a mediochre tool for lead nurturing, but for active Lead, Contact and Account logic based automation it has ZERO functionality.
    We are super Salesforce fans, have full time Salesforce developers on staff and were "sold" this product as an equal to Marketo. It's not even close! Do yourself a favor and check out Marketo.
    Every time we try to do something that should be considered obvious in email automation we're told by their support that "Pardot can't do that". We've heard that sooooo many times.
    Don't walk away, RUN AWAY!
    1 Star is too many!
    === end review ===

    Do you have any data on marketing cloud app downloads?

    As for infrastructure, I've read reviews by developers saying the software is old and needing updates; can you provide color on what's going on under the hood, and compare it to competitors' cloud infrastructure?
    Jan 31, 2015. 04:55 PM | 1 Like Like |Link to Comment
  • Rivals' Clouds Are Gathering Around Salesforce [View article]
    User *812: Good points about the marketing automation category. Many Marketing executives are still figuring out what marketing automation is and how they could use it, so Hubspot and peers are doing a lot of educating. I agree that it is early days and the market is likely to grow massively; yet still highlight that Salesforce appears to have no pricing power in Marketing Cloud. I would not expect Marketing Cloud to drive any bottom-line growth and the company may well need to offer it at a loss for years before seeing gains.

    There is plenty of execution risk for small players Hubspot and Marketo which will need to scale successfully -- no mean feat -- although Hubspot appears to be a smart company with a strong, genuinely innovative product and tons of potential. They are also launching a CRM product, by the way:

    This would appear to be a good opportunity for Hubspot to scoop up small and mid-size businesses that may defect from Salesforce as the latter turns its focus to large enterprises.
    Jan 20, 2015. 11:27 AM | 1 Like Like |Link to Comment
  • A Story With An Unhappy Ending [View article]
    Average non-GAAP EPS for last three fiscal years = $0.36. P/E ratio as of now = 168
    Source: FY 2014 10-K

    What evidence do you have that Salesforce is the leader in "marketing"? This survey has Salesforce trailing Hubspot:

    You write that Salesforce is a leader in "service centers." I think you mean Service Cloud:

    Here's a list of online customer service competitors:

    Do you have evidence that Salesforce Service Cloud leads this group?
    Jan 7, 2015. 02:45 PM | 2 Likes Like |Link to Comment
  • A Story With An Unhappy Ending [View article]
    They paid for ExactTarget, the big Kahuna, with about $2.5 billion in cash. ExactTarget co-founder and CEO Scott Dorsey then left the company in short order.
    Jan 7, 2015. 02:34 PM | Likes Like |Link to Comment
  • A Story With An Unhappy Ending [View article]
    Salesforce is in several other industries than sales automation (CRM) now: marketing automation, platform as a service, customer service, online communities and analytics. If you add up the addressable market of these sub-industries it will be much larger than CRM's market cap.
    On another note: If the stock price tanks, many stock options will have zero value, removing an incentive for employees to stick around. That could be a vicious circle: lower stock prices, loss of talent, poorer results.
    Jan 7, 2015. 02:31 PM | 1 Like Like |Link to Comment
  • Danger Zone: [View article]
    Could you provide facts to back up the claim that the ExactTarget is "profitable" as you seem to suggest?
    Dec 30, 2014. 01:19 PM | Likes Like |Link to Comment
  • Danger Zone: [View article]
    WAINB: I agree with your overall sentiment; however Salesforce does report in GAAP terms as required and provides non-GAAP to GAAP reconciliation so I do not see this as a concern.

    True, they highlight non-GAAP numbers in press releases but that is within the rules. It's up to investors to know the difference and look at the reconciliation if they wish.
    Dec 22, 2014. 03:33 PM | 1 Like Like |Link to Comment