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View Mathieu Deliens' Comments
Greece On The Verge Of Growing Again
I disagree with your view. Greece will not grow until they get out of the Euro.
The major problem of the Euro and that politicians do not want to talk about is the major trade imbalance within the Eurozone. They don't acknowledge the problem. It is not austerity and increasing taxes that is going to change anything for Greence. Cost of labor in Greece is too expensive. It has to be cut by something like 30% before the country can be competitive. Within the Euro, this won't happen. Greeks won't accept salary cut of such magnitude. They are actually taking money out of the country at 2% of GDP per month... so it will ultimately happen by currency devaluation once they get out. It is just a matter of time in my view.
Today, politicians fear is on the banks (and the elections to come). If this happen in a disorderly way (i.e CDS triggering) then it is going to be a mess and contagion will be very quick. Now they continue to kick the can again with LTRO (which is QE), while trying to get bondholders agreeing on higher and higher haircut until we get to 100%. Because they won't repay. Once they do that and see it does not work, they will print more... until they acknowledge the real problem.
In the meantime, Greece is announcing higher taxes and austerity in exchange of bailout. Greece is in depression, there will be more demonstration and the Greek government will be kicked out at the next election. Then they will get out of the Euro.
Greece won't grow until they can be competitive again vs Germany, and this won't happen with the same currency. Same goes with Portugal, which should get a descent haircut in 2012 as well.
Jan 24, 2012. 02:11 PM
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Salesforce: Fairly Valued But Watch Revenue
Simon, thanks for the article.
I think the number of red flags for CRM would show that the company is very overvalued. In addition to the worrying signs that you mention above, here are some additional ones:
1) Negative Free Cash Flows: You mention correctly that the acquisition are eating free cash flows. Hence acquisition cost should be deducted from the free cash flows since those acquisitions are a source of revenue and free cash flow for CRM
2) CFO growth is slowing. (34% ttm), although the last quarter was 74%qoq and reassurring on that side, but the growth didn't make it to the net income line (the 2 precendents were -3% and +9%). This is very important because due to the revenue recognition, CFO will slow down first and then revenues.
3) Operating margin steadily decreasing for the last 7 quarters (join your point on SGA expenses). In order to pay such high valuation for the company i would expect and improvement of the gross margin (which is the case by a few points over the past few years), but the SGA/Gross margin ratio increasing, and more than compensate to the downside so both operating and net margin and decreasing.
4) Intangible assets / total assets jumping from 10% to 27% in a year. Potential risk of goodwill write off in the future, and for now the acquisition cost does not compensate for the cost in free cash flow gained by those acquisition.
5) Competition is there with MSFT, Oracle...
Too many red flags for me. At those levels i would expect perfect growth at least on the CFO & FCF, improving operating margin in order to see some earnings in the future. I think next quarter results will be key, let's see if the CFO growth is still high qoq & if margin improve. For now i don't believe in it at all given the numbers i see. I think the risk is low to be short.
I am short CRM via put options.
Jan 19, 2012. 04:11 PM
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