Geoff Abbott

Geoff Abbott
Contributor since: 2010
Maybe next time read the filings yourself and do some calculations. I agree with your thesis on the stock, but you shouldn't rely on random websites. Do your own work.
Your share count is double what it should be. Check the company's filings. Class A shares PLUS Class A equivalent Class B shares total 1.65 million, not 3.3 million.
Again, do your homework before you jump to conclusions. If we're wrong about our analysis, we want to know, but we'd appreciate if our critics would give their work the same thought and care that we give ours.
Read the entire annual report and letter to shareholders. Better yet, read several years of annual reports and letters to shareholders. Don't spend 10 minutes making random calculations and conclude that our numbers are way off.
Do some real analysis like we have, and then share your conclusions.
Look at Buffett's most recent letter to shareholders. All the info is there. Your calculation doesn't factor the many billions of dollars of equities that BRK owns.
Splits don't boost the value of stocks. If I traded you 10 $10s for a $100 bill, would you feel richer? If not, why would you feel good about a share split? Has Warren Buffett's refusal to split BRK.A shares hindered his stock's appreciation?
There's a very real difference between price and value, and anyone who buys a stock because it has been split is confused about this all-important distinction.
We want to share an update on our MFW investment.
We got some really valuable feedback on this interview. In light of the feedback, we reconsidered and changed our investment thesis. We have recently exited the MFW position.
Though we still believe the stock could go much, much higher, we no longer have strong conviction that it will go higher. Though that’s a subtle distinction for most, it’s a critical one for us.
The main reason we share investment ideas is to get feedback on them. If we're wrong, we want to know it, and we've found that sharing ideas publicly is the best way to evaluate the relative strength of varying investment opinions. Thanks to those who gave us feedback on this name.
I think you're implying that we've changed our short thesis...that's certainly not the case. Though the company's declining (and now negative) earnings are a really compelling aspect of the short thesis, we now believe that the discrepancy between revenue and operating income are even more intriguing as it shows that Salesforce is no longer a rapidly growing company. We have yet to meet a CRM bull who understands (or cares about) the company's accounting.
Our short position hasn't influenced our thinking. Rather, our thinking about the company caused us to initiate an add to our short position over the past 6 months. The facts remain that CRM isn't profitable, and its accounting obfuscates the company's position. It's beyond me why anyone would want to buy an unprofitable company with a $20B market cap and a flawed business model.
JTZ...though you seem to be taking our musings on CRM personally, we'll continue to analyze the results dispassionately, and we'll be the first to change our minds should the facts no longer be on our side.
Certainly not taking it as gospel. The $60-65 valuation assumes that everything goes right for the company. I only mention the adversarial relationship to point out a potential headwind and to illustrate how OPEN bulls are ignoring any and all risks.
This post by a San Francisco restaurateur explains it more eloquently than I can:
incanto.biz/2010/10/22.../
Agree completely. Also, it's not just kids who are attending the theaters. Theater attendance has grown during the time that Netflix has gone from 0 subscribers to 20 million. Netflix isn't much of a competitor to the theaters. Theater naysayers thought that cable TV, VHS players, and DVDs would spell the demise of the business. They've been wrong so far. The data do not support the case that Netflix, Redbox, etc will kill this business. As I say in the article, the real competition for theaters is other forms of out-of-the-home entertainment, and theaters compare favorably to this competition.
i'm not a trader, and i don't have defined time horizons for my investments. i think salesforce could rally considerably in the next weeks and months. i also think it could collapse. as i said, at some point, reality will bite, and the stock will fall. i remain in positions either until i'm proven correct or until some business development proves my thesis to be flawed. price action, whether up or down, has no bearing on my decisions unless it gives me the opportunity to add to my positions at more advantageous levels.
Mark: I am still short. I have no idea if it's "ready to burst," but I'm confident that reality will bite the longs at some point. I have reason to believe that the company is working aggressively to boost sales before the end of its fiscal year by using promotions, so I consider it likely that it delivers another upside revenue surprise this quarter. If history is any guide, the stock could rally considerably on that "news." However, CRM's stagnating profitability and poor use of cash say more about its strength than its sales growth does.
pretty clear you didn't understand my argument...i addressed this very issue. facebook is no longer a start-up that needs capital to get to a point where it can generate cash. it has 500 million users.
compare facebook to other large companies that need capital. obviously, building up technology infrastructure is much less expensive than developing an oil field or building power plants, yet facebook cannot fund these costs internally.
I think you're misreading the consensus. The prevailing view is that CRM will continue to move higher. All the mainstream press coverage is favorable, Cramer pumps the stock nightly on his show, and the investment world is, for the most part, completely sold on cloud computing. Belief that the stock is overvalued is definitely not mainstream.
Also, there's a good chance that momentum players and high frequency trading outfits have been piling in. This certainly fits their profile.
I have considered the idea that they could reduce marketing expenses after locking customers in, but there is a key problem with that. The market is driving the stock higher because of top-line growth. If they reduce marketing expenses, top-line growth will slow, and the stock will crater.
I understand that days like this can shake your confidence as a short, but you shouldn't let share price spikes alter your thesis about the business. CRM will prove to be a far greater company for its customers than for its shareholders.
Rich...in the interest of getting a better sense of what the bulls think there, can you tell me why you think their potential matches/exceeds oracle's? it seems to me that they have only one main business and will be subject to increasing and intense competition as they expand into the cloud space.
My issue isn't with CRM (or any other company) building a campus. I find it problematic that they spent $278M on land for a campus without any plans to develop the land and without a clear need for the additional space. Do you really believe CRM's business has the same potential as Oracle, Microsoft, Pepsi, and GE?
Wanted to address a few of these comments.
tudo bom...i don't think i'm too casual in my dismissal of the fed's policy in 2009. what did it actually accomplish? sure it got equity prices higher, but stocks rallied as individual investors fled equities in droves. the rally essentially lined the pockets of banks, fund managers, and HFT firms. clearly, the equity rally hasn't contributed to growth meaningfully.
goofus...i know the "weak dollar is great for exports" argument is a popular one, but anyone who espouses this view doesn't include the costs of a weak dollar in their analysis. the US is a huge net importer. as our dollar declines, our exports do become more competitive, but it becomes much costlier for us to import goods. since we import more than we export, this is a net detriment to society. a weak dollar may help holders of assets and manufacturing employees, but it hurts everyone else.
I did a similar analysis to PCLN as the one I detailed above for CRM, and I came to a different conclusion. Though PCLN shares are likely too high, it is conceivable that the company's business could perform well enough to justify the share price. If one assumes a favorable outcome for PCLN like I did for CRM, its share price seems more reasonable. Keep in mind that 75% of PCLN's business comes from outside the U.S., so what American investors often think of as Priceline's core business represents only a small portion of the company's operating results.
With regard to NFLX, I'm inclined to agree with you about the valuation, but the short interest is so high that I'd imagine you'll have a very hard time borrowing the shares. Buying puts is problematic too because the premiums will reflect the elevated borrowing cost of the stock.
Ian: Thanks for including the link in your e-mail. I certainly did not interpret your comments as argumentative. I do not think truth can be determined in a vacuum, so I always welcome discussion/debate/alte... views.
I want to say a few final things to clarify my thinking. First, my views frequently differ from the consensus. However, this alone is not adequate basis for me to make capital allocation decisions. I run a fairly concentrated book, so I am more concerned with the level of conviction I have in different ideas. Though I always have an opinion about the macro environment, I rarely hold this opinion with enough conviction to act on it.
Finally, I'll address the point about the importance of the macroeconomy in forecasting a company's cash flows in the long-term. Obviously, the economy influences the performance of most businesses, but that does not mean that I think I can accurately forecast it. When considering a long idea, I assume a weak economy for the medium-to-long term. I do not have true confidence that we will return to robust growth any time soon, so I consider it unwise to make investment decisions whose success are contingent on strong growth. Likewise, when considering a short idea, I focus on company's whose shares I think are overvalued even if the economy performs well. To me (and to most/all value managers, I presume), it's all about finding ideas with a considerable margin of safety.
Ian: Thanks for the comment. When I wrote this article, I intended to phrase the opening as I did. I don't view the opening sentences as contradictory. I wrote "I TEND to make capital allocation decisions" rather than "I always make..." I continually survey the macro environment, but my opinion about the economy only rarely influences my investment decisions. Unless I have total confidence that my macro views are significantly different from and more accurate than the consensus, I think my time better spent on researching companies. I think it's good to always articulate ones views about the economy but only let those views influence investing decisions when appropriate.
I'd also disagree with your second point about the importance of the macro outlook in bottoms-up investing decisions. There are plenty of value managers who totally disregard the macro outlook, and many others for whom it is only a secondary or tertiary concern. True, the value of any enterprise/security is "the present value of all future benefits that may be derived from owning it." However, the near-term macro outlook has little influence on the ultimate valuations derived from this method. Much more important is what one things a business might be earning in the long term, and the current level of equity prices/the performance of the economy over the next year or two has very little bearing on what a business might earn a decade from now.
I hope this adequately addresses your points.
wish i knew when it cracks, but, since i run a balanced book, i'm not so concerned about timing. if/when the market turns, things like CRM will be the first to crack, and they'll drop quickly.