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Slim Shady

 
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  • Slowing Growth Could Be Fatal For Salesforce.com [View article]
    Matt - you are correct that sales gets paid up front, but in the accounting they recognize the commission expense over the life of contract, not all up front. So margins would be the same in years 2 and 3, rather than better, and when in the year the deal was signed has no affect on profitability.
    Mar 19 11:05 AM | Likes Like |Link to Comment
  • Salesforce.com Is Living On Borrowed Time [View article]
    Simply because a company signs a long term contract doesn't mean that it has to pay the amount of the contract up front in cash. The only reason why a company would pay the contract in advance is if they get a substantial discount to the otherwise contracted price. So in essence, CRM is hurting their profitability to fund their growth by using customer cash received at a discount to the contracted price instead of borrowing money from other sources.

    In 2010, CRM had cash on the balance sheet of $1 billion in excess of what they had received in advance from customers. In 2014, it now has received $1.2 billion more in future revenues than its actual cash. CRM has also borrowed $2.2 billion from future revenues to fund it's growth, in addition to actually borrowing $1.4 billion.
    Mar 10 10:42 AM | 1 Like Like |Link to Comment
  • Ascent Capital Is Unmonitored Even With A 20% Free Cash Flow Yield [View article]
    I don't disagree that debt is valuable in this model, but if you are valuing the business, you need to take the enterprise value, which is equity and net debt - particularly if you are comparing companies with different capital structures or compared to the total amount they paid for Security Network.
    Mar 7 10:57 AM | 2 Likes Like |Link to Comment
  • Ascent Capital Is Unmonitored Even With A 20% Free Cash Flow Yield [View article]
    "recurring monthly revenue heading into 2014 was $42.8 million. Based on the current $1 billion valuation, this suggests a ~23x RMR multiple, which is dramatically lower than the 57x price paid to acquire Security Network, and less-than-typical valuation multiples in the mid-40s for this sort of recurring revenue stream. The market has yet to re-rate the customers acquired and resultant free cash flow in the Security Network deal."

    Mike - the current valuation of the company would include the $1.4 billion of debt, so this suggests a 56x RMR multiple, which is in line with the price they paid to acquire Security Network and higher than typical valuation multiples you mentioned. It does seem the recent transaction is incorporated in the valuation.
    Mar 7 10:49 AM | 1 Like Like |Link to Comment
  • Will Intel Fail Apple? [View article]
    David - I guess that was my question - could they be trying to move up Broxton in the roadmap which would cause a delay in the roadmap for Broadwell.
    Feb 17 01:09 PM | Likes Like |Link to Comment
  • Will Intel Fail Apple? [View article]
    Question Ashraf - (forgive me if I get all the terminology incorrect - there is just too much for mere mortals to keep up with...) there is a lot of talk about Intel delaying the release of Broadwell on 14nm, but I haven't seen any discussion of potentially moving up the release of the next Atom chip to 14nm. Since they already have the lead in the core chip segment and are behind in the mobile chip segment, wouldn't it be wise to accelerate mobile to 14nm while delaying the move to 14nm for core? I thought I remembered somewhere in the past at an analyst meeting that Atom wasn't necessarily going to play second fiddle to Core when it came to moving down the process curve. Thoughts?
    Feb 17 11:04 AM | 1 Like Like |Link to Comment
  • Amazon.com - A Typical Earnings Announcement [View article]
    Once again, an author who believes that "reinvestment" includes getting products to your customers, spending on video content that is not owned but consumed, subsidizing the sale of kindles, and giving away free books. Plain and simple, those are regular expenses of doing business. Wal-Mart doesn't exclude the expenses to operate stores which enables their customers to get their products. Netflix doesn't exclude their video content costs as "investments". Intel does not exclude the expenses required to subsidize the entry into the mobile market. Companies that give away free items to lure customers call that a marketing expense. The notion that Amazon is investing, no less "overinvesting" is simply not supported with any factual evidence.

    If AMZN had a plan to achieve an operating margin of 10% in the medium-to-long term, they have never articulated it, and that is because they can't. They have proven that they are not the low cost producer in what is a commodity business - reselling other people's products. Therefore, they have no long term sustainable competitive advantage to generate outsize returns. They can continue to grow revenues with minimal to no profitably as long as their vendors and capital markets will allow, but they will never be able to drive all of the competition out of business, which is what would be required to drive future outsize profitability. There are no barriers to entry in retail over the internet and Amazon has proven that there are no economies of scale.

    There will be a day when the market values Amazon for what it is...a marginally profitable retailer. At that time, it will command an EV to sales multiple no greater than Wal-Mart. Even if they continue to grow revenues faster than the market for a period of time, which will become ever harder the larger they get, there is still no plausible scenario to justify the current valuation.
    Jan 31 08:03 AM | 17 Likes Like |Link to Comment
  • Amazon ‘Kid-Gloves' Insanity Continues  [View instapost]
    Does anyone else find it disingenuous that they would highlight that without changes in foreign exchange rate net sales growth would be 22% instead of 20% reported, yet they have never broken out the impact of the change in accounting for 3rd party sales?
    Jan 30 05:39 PM | Likes Like |Link to Comment
  • Amazon - Buy Into Earnings [View article]
    Actually, your return to risk is only 1.5/1. If the stock closes over $400, you only make $6 since it cost you $4 to enter the trade (400-390-4= $6). If the stock closes below $390 you lose $4.
    Jan 30 05:43 AM | 3 Likes Like |Link to Comment
  • Amazon: A Retailer Valued Like A Tech Company [View article]
    Very nice comparison of Amazon's operating metrics compared to Tech companies and compared to Retail companies. Plain and simple, they are a retailer with no competitive advantage. Since their Gross Margin is the same as Wal-Mart, but operating profit is 5% less - it is obvious they are not the low cost producer (especially when their pricing to some jurisdictions does not include sales tax).

    If they raise their prices to match Target, as the bulls claim they can/will, then their operating profit % would simply match Target since they have the same operating cost structure. Their growth would slow due to higher pricing and they would be afforded the same P/S as Wal-Mart and Target, which is 80% less than the current multiple. If Target grows revenues at 5% per year for 10 years, it is trading at .33x P/10 year forward Sales. At Amazon's current market price, to be valued comparably to Target at its same P/Future Sales ratio implies $529 Billion in revenues 10 years from now, or compounded annual growth of 21.6%, while raising it prices. If Amazon was able to grow at a not too shabby rate of 15% annually for 10 years and achieve $300 billion in revenues, at Target's future P/S multiple it would currently be trading at $220/ share, 43% below the current price.
    Dec 9 12:41 PM | 2 Likes Like |Link to Comment
  • Veeva Systems: SaaS's Biggest Bubble And Tech's Best Short [View article]
    Excellent work. At first blush, an $8 price target may seem absurd for a company trading at $40 per share. However, you only need to look to their S-1 to justify a price in that range.

    Prior to becoming public, they were required to estimate the fair value of the common stock for their stock options program. This was determined by the Compensation Committee of the board of directors based on the most recent contemporaneous third-party valuation as of the grant date using a "market comparable" approach which estimates value based on publicly traded companies in similar lines of business.

    On May 23,2013, the value assigned was $5.73 per share, which included a non-marketability discount of 10% and took into consideration the fact that they had taken steps toward an IPO. From the S-1: "we applied a revenue multiple of comparable publicly traded companies that was 45% greater than the valuation prepared as of January 31, 2013, which revenue multiple was between the first quartile and mean of comparable companies." Using this valuation and removing the non-marketability discount would imply an EV/ Trailing Twelve Months Revenue of 5.1x. With their current TTM Revenues produces a price of $8.27.

    On September 10, 2013, a mere month prior to their IPO, the price set was $9.88 which reflected a non-marketability discount of 7.5%. From the S-1: "we applied a revenue multiple of comparable
    publicly traded companies that was 25% greater than the valuation prepared as of June 30, 2013, which revenue multiple was within the narrow average revenue multiple of the industry-specific software-as-a-service public comparable companies due to their greater comparability with our business given the industry-specific nature of our software solutions." Using this valuation and removing the non-marketability discount would imply an EV/ Trailing Twelve Months Revenue of 8.2x. With their current TTM Revenues produces a price of $12.16.

    While one could argue that the Compensation Committee was conservative in their valuation methodology to assign a value since it determined the option strike price, it is highly unlikely that they would have underestimated by a factor of 250%-400%, especially given the impending IPO.
    Dec 8 02:27 PM | 4 Likes Like |Link to Comment
  • Salesforce.com's (CRM) "Phenomenal" Quarter [View instapost]
    Marc Benioff
    Nov 21 08:28 AM | Likes Like |Link to Comment
  • Could Salesforce.com Be Fudging Their Sales Numbers? [View article]
    A phenomenally tremendous article by Illuminati.

    http://seekingalpha.co...
    Nov 20 04:21 PM | 6 Likes Like |Link to Comment
  • Salesforce.com - The Underpants Gnomes Of Wall Street [View article]
    Exactly - when people exit those ETF's, the mindless facilitators will have to sell and who is going to be there to buy?
    Nov 1 11:17 AM | Likes Like |Link to Comment
  • Why Amazon May Be Worth $165 Billion, More Or Less [View article]
    or Plastics...

    Ebay had $60,234 in total Gross Market Value of products sold for the 9 months ended 9/30/13, an increase of only 10% over the prior year. Its Marketplaces segment had Operating Income of $2,406 and it had $1,202 of Corporate expenses. Assuming only 1/2 of the corporate expenses are allocated to Marketplaces and a 25% tax rate, which is the average for 3 years when Amazon used to have income, that works out to $1,354 in Net Income for Marketplaces or a Net Margin of 2.25% on the Gross Market Value of products sold. It also is a strong competitor that will hold back Amazon from raising prices.

    Next...
    Oct 29 10:04 AM | 1 Like Like |Link to Comment
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