Zachary Scheidt

Salesforce.com: Another Chance to Short

I agree with J-remington - it would be difficult for a competitor to justify taking out CRM at the current price.

Dawase, yes timing is everything. That's why sometimes it pays to use options on this type of trade instead of shorting outright. However, there is no "free lunch" and the option security comes at a price. Namely, you have to pay a stiff premium for options on CRM.

Thanks all for the comments!
Zach
zachstocks.com

Goldman Advises to Sell Salesforce and Buy VMware

Sounds familiar.... We've been negative on CRM for some time now:
zachstocks.com/2009/03.../

I'm not sure I'd get too excited about VMW but yes, they do look to be in better shape from an investment standpoint than CRM.

zachstocks.com

Salesforce.com Unlikely to Sustain Its Current High Multiple

Dirkyp - Thanks for your insights. You ran through the short-interest figures very well but I have to say that these figures can actually work against a short position. When I am short a name like this, I like to see short interest at low levels (not always possible, but its better that way). The danger you run into now is that some good news will come out and the shorts will feel compelled to cover. That could cause prices to rise sharply as all the shorts hit the exits (read: buy) at the same time.

I do agree with you, however, that fundamentally, the stock is already pricing in any good news. Even if they turn in tremendous performance over the next few quarters, the company will simply grow into the big shoes that the stock is implying. There seems to be much risk and very little upside. Well said.

Thanks for the disclosure too - I remain neutral with no position.
Zach
zachstocks.com

Salesforce.com Unlikely to Sustain Its Current High Multiple

Thomas - Thanks for the comments - yours are definitely the most insightful in this thread (not sure how my CRM analysis points back to oil :-)

You are certainly right in both your mention of the relationship with Google and the short float. This is a headwind to my assumption but in my opinion does not negate the difficult fundamentals and high multiple. Since the stock bounced more than 50% from its low, it would appear this might be a more opportune time to short as those two issues probably had a good effect on driving the stock higher. But in time, the fundamentals will carry more weight and so I think above 30, this stock has a good bit of risk.

Thanks all (even Gumby) for your comments
Zach
zachstocks.com

Salesforce.com Unlikely to Sustain Its Current High Multiple

Excellent comments guys - although I always get nervous when too many people agree with me...

Anyone have a differing opinion? Is there a rational justification for the stock at this price? What would surprise investors to the point that we would see a higher price from where it is now?

Zach
zachstocks.com

Salesforce.com: It's All About the Guidance

Sorry Daniel - didn't mean to skip your comment...

Some think it is worthwhile to value a company using some multiple of sales - the revenue a company can generate. I completely disagree because it makes absolutely no sense to be concerned with how much money the company is bringing in the front door (revenue) without also considering how much goes out the back door (expenses). We saw this in the late 90's where companies were losing money on every single transaction but analysts said they would make up for it by increasing volume. So if you lose 80 cents per transaction, how does increasing that number of transactions actually help you???

Granted, if a company has high fixed costs, low variable expenses, and any additional revenue flows straight to profit, an analysis of expected revenue growth is important. But valuing an entire company based on price to sales just seems very uninformed.

hope this helps,
Zach
zachstocks.com

Salesforce.com: It's All About the Guidance

Yes, this has been a disaster waiting to happen. But it took much longer to break than I expected. I do believe now that the trend has been seriously broken, it will take months for any sustainable rally to occur.

Appreciate the comment!
Zach
zachstocks.com

Salesforce.com: When Shorting, Timing is Everything

Chungst. I think you may be splitting hairs with your comment, but if it makes you feel better, let me state the "fact" that the multiple is high, and my "opinion" that this high multiple will come back in. I certainly never meant to imply that it was fact that the stock will decline.

Thanks for the comment,
ZDS

Salesforce.com: Ticking Time Bomb

Thanks everyone for your comments... This is obviously a well followed name and I don't pretend to know the intricacies of all the product offerings by CRM, Netsuite, Oracle or any others. My position is one of an investor who has been in this game a long time and realizes that it will take quite a bit of time for the fundamentals to catch up with the stock price.

The rumor of a merger seems even less likely when one realizes that Larry Ellison owns a large position in Netsuite. It seems unlikely that he would align with one of the more difficult competitors.

I understand the concept of hypergrowth and have seen plenty of stocks that trade to extreme multiples based on exceptional forecast growth. The story often has a very disappointing ending as investors begin to realize that their high hopes were set just a bit too optimistically. The argument is rarely centered around a poor business but instead it is around a esoteric multiple. This is my fear with CRM as the "growth at any price" matra can be very dangerous.

Only time will tell which side of this argument is correct and I don't presume to have all the answers, but I do have a keen eye for risk and this situation has all the makings of a risky endeavor.

Good luck all with your positions.
ZDS