Sunil Shah

Salesforce.com: Absurdly Overvalued

user 221132, see my previous notes on CRM's moderating revenue growth and traction rate. Sales are clearly decelerating.

Also, how the street reconciles a company on a 118 trailing PE (FPE to Jan 11 of 76!) and a hurdle for sales growth for this quarter of 17% YOY is simply beyond me.

They may well beat the street consensus for this qtr (results 17th Nov), but it sure as hell doesnt justify the valuation.

Looking to short more post results. Go big or go home, as the swamis say on the banks of the Ganges -:)

Salesforce.com: Absurdly Overvalued

The momentum mojos are right in one respect: a value approach can predict, with reasonable confidence WHAT will happen, not WHEN it will happen. But guys, the ultimate criterion will be based on rationality (as it was during the 99 dotcom frenzy, as it was in homebuilder stocks); reason will prevail and reason clearly dictates this stock has run two maybe three years ahead of itself, in an future environment as fickle and as capricious as a cloud!! Can you say with reasonable conviction SFDC will maintain its 35% rev growth rate for 3 years? IN THIS TOTALLY TURBULENT CLOUDY WEATHER? Time will tell, lets talk in two years. I will weather the rain until then.

Why Is Marc Benioff Presenting at Oracle Open World?

I think it highly improbable that Oracle buys CRM. Why?

-L Ellison holds a personal stake and there would be huge dissent from shareholders
-It would negate Siebel acqtn, where ORCL has spent millions reconfiguring it as a SAAS entity also.
-The ridiculous premium on CRM's valuation, which can only be justified due to the takeout rumours flying about for the past 2+ years.

There is almost no way. The Oracle expo will finally unveil all the hype and the underlying reality of CRM. That's why it has been granted a pole position. But share keeps rising as half-baked rumours keep circulating. Market will take care of this in time.

Why Is Marc Benioff Presenting at Oracle Open World?

I think it highly improbable that Oracle buys CRM. Why?

-L Ellison holds a personal stake and there would be huge dissent from shareholders
-It would negate Siebel acqtn, where ORCL has spent millions reconfiguring it as a SAAS entity also.
-The ridiculous premium on CRM's valuation, which can only be justified due to the takeout rumours flying about for the past 2+ years.

There is almost no way. The Oracle expo will finally unveil all the hype and the underlying reality of CRM. That's why it has been granted a pole position. But share keeps rising as half-baked rumours keep circulating. Market will take care of this in time.

Salesforce.com Slides as Cakebread Quits

Now why would you sack three top people from your primary division, immediately after a year-end with tough sales targets? Then: Listen to Ellison on Oracle’s earnings announcements, where he makes no less than six references to Siebel wins over CRM in the quarter. This incidentally is the enterprise division where 3 people, (including the former highly regarded CFO!!) were ‘removed’.

Pure conjecture, but CRM’s top honchos may have abruptly and shockingly discovered a shortfall in either sales or more likely the deferred revenue balance at year-end. It’s a big jump/ask from last year, when Dell was added.

Salesforce had already undergone a reality check in the Oct 08, quarter, when their deferred revenue balance didn’t meet expectations. Why is this important? Well the revenue line only tells part of the story of their customer success-the bookings made and related to that specific quarter. Whereas the change in deferred revenue reflects more of the customer success story, relating to contracts sold but due in future periods. So the overall ‘customer success’ rate would be captured as an addition of quarterly revenue and the change in the deferred revenue over that quarter. This would give the true customer traction over the quarter, and a year on year comparison would give a real growth rate without any seasonality, clearly a factor for the company.

So here’s the customer traction rate: revenue plus change in deferred revenue balance in the quarter, for the last few quarters, on a yoy basis.


Jan-07 Apr-07 Jul-07 Oct-07
Cust Traction 56.9% 48.0% 46.0% 44.3%


Cust T Jan-08 Apr-08 Jul-08 Oct-08
70.9% 36.1% 34.3% 25.9%




Few observations:
-The January quarter is always a bumper, probably because long-term contracts are booked at the end of a calendar year.
-Jan 08 was a quarter where the force was truly with them and produced a 65% growth rate, along with a 30% share price lift in the following three months- Thank you Dell for the big boost! Now all we have to do is beath that hurdle.
-This is clearly a company with decelerating customer traction. Although the sales growth for Q3 was 43%, the real customer success story, the customer traction has moderated substantially to 26%.


So now what does bend-my-ear-off Benioff do, in light of the recent key staff ‘removals’? Well the easiest way to stem the selling tide would be to preannounce sales for the January quarter- before real fear seizes his share price. But he cant. Why? Because they are about to miss, either on revenue or (IMO), the deferred revenue balance.

Still lots of room to go, shorties, enjoy the ride. Time for the valuation to re-enter earth’s atmosphere. About Feb 27th for results if last year is a guide.

Disclosure: I’m short. Surprised?

Salesforce.com: Pricey and Coming Down Fast

'Paradigm shifts' have one nasty drawback- the shifter usually ends in the garbage heap. CRM has surprisingly managed to keep share price above 30 in this equity meltdown, the only rationale being its cashflow (the pe OF 100 simply could not have survived this carnage). BUT that cashflow does not account for all the shares they issue to staff (it actually adds to cash) to retain them, in lieu of normal salary. Well, now most of the recent options are under water (price down about 40% ytd and falling) we'll see how secure their people are, and how much more old-fashioned salaries they have to pay. Force.com is wonderful for young trendy software people who cant get into the mainstream, but how many applications will be commercialised? Its laughable, they tout their new alliance with facebook and its 127m users- tell me dear bend-my-ear-off, how do propose to convert facebook into commercial dollars, have you any idea what facebook people do and do you think they are willing to pay for it!!! shareprice will be below 15 by year end. I'm banking on it!!

A Recession-Proof Corner of the Tech Sector ('Entrepreneur Journeys' Book Excerpt)

has the author paid any heed whatsoever to valuation when she claims CRM will continue to be 'successful'?