Mark Cabaniss

Mark Cabaniss
Contributor since: 2012
Krk -- I didn't say the herd was growing in size. A herd does not need to grow to be a herd.
Charlie --
I agree with you on the general theory; however, I disagree on these two companies. Salesforce had the cloud to themselves, but they don't any longer. Here come IBM, SAP, Microsoft, Oracle, etc. To me, that means that future earnings will go down, not up. As for Amazon, it really is difficult to know where to begin. Consider just the Kindle. They give them away at or near cost. Why? Well, the H-O-P-E is that they will make it up in profit on content and sales of physical goods sold over Kindles. Only that hasn't happened yet, and it may not ever. Just because that is the plan does not mean that it will occur. Going back to Salesforce, I don't see how they will ever be profitable, because in the event they ever were to make a profit, they would almost certainly give it away to their executives in the form of stock options; that is their history.
In other words, that "investing in the future" line can't be used forever; at some point you have to quit talking about how you will turn a profit, someday, and actually make one, today. We shall see.
I don't give institutional investors credit for understanding anything except which way the wind is blowing. The "investing in the future" mantra is just an excuse to buy high-priced companies, a justification. After all, Alcoa and General Motors are also investing in the future.
As for Bezos, I agree that he is a visionary. I admire Bezos. But I think he is becoming a victim of his own success, because he thinks he is infallible. I think he has had one too many visions. It is one thing to put some poorly-run book chains out of business, and quite another to take on Apple and Google in a price war when they are profitable and you are not. Without profit, how are you going to fund the price war?
As for Benioff, I think he is a great salesman, a great tout, a great stock promoter.
I agree that you can't fight the market, but I think for companies to qualify as "well-run" they need to make a profit, and I also think that having a CEO who thinks he is a visionary isn't necessarily a good thing. I think it's dangerous.
It isn't hard to follow the money here. Why are they buying top-line growth even with dramatically diminishing bottom-line returns?
Because they have to. If the much-hyped revenue growth were to slow or stall, the stock price would fall.
So what? Well, then people with truckloads of options would lose big bucks.
So, management has a rather pronounced incentive to keep the "growth" story going as long as possible while they dump freshly-printed shares.
This is a classic example of short-termism completely overwhelming long-term considerations. What is ironic is that the very lack of profitability inflicted by the short-term focus on revenue growth is held up as evidence that they are more concerned with future profitability than present performance: "We are not profitable because we are investing in the future." This is, in my opinion, the exact opposite of the truth: they are not profitable because they are DIS-investing in the future -- i.e., they are using their cash and stock to fund a rolling series of nominally-accretive "growth" acquisitions rather than to consolidate and make profitable what they already have.
We have seen this story before: We will grab up the market by spending like crazy, and THEN we will become profitable. Only the profit never comes, and the growth hits a wall.
In my opinion that is when the stock begins to fall, when they run out of nominal revenue growth candidates for acquisition, or the executives of said candidates demand cash instead of freshly-printed shares as compensation for selling out their growth-accretive, revenue boosters.
Thank you Mitch! I was searching for an analogy that even the dullest business writer might be able to grasp. The two articles I cited made me cringe, and I know there were others equally as misinforming. The same thing happened with Amazon's last earnings -- widely misreported by lazy incompetents.
Thank you for all the comments, everyone. CRM is using stock instead of cash to pay their employees. It is an expense, because it dilutes the outstanding shares, in the event that CRM ever makes a profit. But, unlike cash, CRM can just print up as much new stock as they want. Which means that anyone getting these newly-printed shares of a profitless company ought to view them as something of a hot potato, and dump them on someone else. Which is precisely what the insiders have been doing for a long time.
But, why doesn't everyone dump them? While lazy journalists misleading the muppets with incorrect language makes me angry, I don't think the muppets move the market. I think it is fund managers. And they, unlike the muppets, couldn't care less about earnings, real, imaginary, GAAP, or otherwise. They only care about mo-mo. And mo-mo is self perpetuating -- I buy it 'cause it's going up; I sell it 'cause it's going down.
Two things here -- when it turns it is going to be off-the-cliff; and two, a monkey could run a mo-mo canslim-type fund.
Thanks for the article Mr. Shah; you are great. One need not be an accountant to find the numbers strange: you can only pay your employees in options when the share price is up. If it starts going down, what are you going to do then? Massive dilution of a falling stock price? I think this implies that there is an accelerating or snowball effect built into the downside for CRM, whenever the analyst smoochfest ends. I agree that the analysts are massively lame on the call. But there's worse. Check out the last AMZN call. It should have been held in a petting zoo:
Superb article. This stock is a disaster waiting to happen. All the cheerleader analysts in the world can't keep this Hindenburg levitating much longer.