Salesforce.com (CRM): FQ4 EPS of $0.43 beats by $0.03. Revenue of $631.9M (+38% Y/Y) beats by...

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drekon Comments (170)
 
oil at 108, market rallys. eurozone cuts growth, euro rallys. CRM guides down, stock rallys. Not my day...
23 Feb 2012, 04:20 PM Reply Like

AlphaVolume Comments (243)
 
i'm with you. wow.
23 Feb 2012, 04:26 PM Reply Like

ReligiousWacko Comments (134)
 
Why do headlines ignore CRM's GAAP numbers? the ones where they LOSE money? How in the world does stock given to employees not count as an expense?
23 Feb 2012, 04:28 PM Reply Like

apwwest59 Comments (49)
 
Because apparently *actually* making money isn't important. Sorta like adjusted EBITDA. There's no rules, so you can make yourself look as good as you want. They might as well back out SG&A too, then they would be immensely profitable. Actually, why not just back out all of the expenses. We can call it "expense-net EPS" and get CNBC to run a headline on it. I bet we could get some analysts behind the new metric too.

(I'm a little bitter, if you couldn't tell)
23 Feb 2012, 08:19 PM Reply Like

Andrew Mann Comments (901)
 
People believe what their bias tells them to. If there is anon-GAAPp number that is better than the GAAP one they believe the non-GAAP and say GAAP isn't a realistic portrayal of economic activity. Completely agree with apwwest. Companies can come up with all different ways to calculate income, and as long as they disclose it isn't GAAP it is all good.
23 Feb 2012, 09:18 PM Reply Like

Doyle3000 Comments (732)
 
lemmings - it's very much like 1999 right now. CMG says same store sales will be low to mid single digit growth in 2012 and the stock goes up $40 in 3 weeks.

GAAP numbers ultimately mean something. CRM cannot hang in ridiculous valuation forever.

be confident, this is a facade
23 Feb 2012, 05:37 PM Reply Like

SA Editor Eric Jhonsa Comments (563)
 
For a company like Salesforce, which has giant deferred revenue balances on account of up-front payments for subscription contracts, I think both GAAP and non-GAAP earnings matter less than free cash flow.

Stock compensation expenses matter to the extent that they dilute future free cash flow/share, but declaring that the company is unprofitable because of them is to ignore all of the cash that's being generated from subscription payments that haven't been booked yet.
23 Feb 2012, 05:46 PM Reply Like

Jay Schembs Comments (67)
 
The company did not generate any free cash flow in FY2012. Operating cash flow of $591.5 MM less $631.4 MM of capital expenditures (calculated as the reported investing cash outflow of $489.7 MM plus adding back the $141.7 MM in cash generated by selling marketable securities) equals negative free cash flow of $40 MM.

They disingenuously show FY2012 FCF of $439.9 MM by only subtracting capex from operating cash flow. For a company that is generating much of its revenue growth from acquisitions, excluding these cash outflows from free cash flow is bogus.
23 Feb 2012, 06:53 PM Reply Like

SA Editor Eric Jhonsa Comments (563)
 
Free cash flow is typically defined as operating cash flow - capex. Acquisitions are investments in businesses, and need to be treated as such. The way to recognize them is to account for the hit on a company's balance sheet (if paid for in cash) or future profits (if paid for in stock).

There would be a lot of very profitable blue-chip companies that would start looking expensive on a price/FCF basis if the price of every acquisition they made was deducted from their free cash flow.
23 Feb 2012, 07:17 PM Reply Like

Jay Schembs Comments (67)
 
<The way to recognize them is to account for the hit on a company's balance sheet (if paid for in cash)>

What does that even mean? Investments to grow the business, whether via cash spent to buy new equipment or acquire businesses, reduce free cash flow. Both "traditional" capex and acquisitions find their way to the balance sheet.

Sure, the shorthand definition of FCF = CFO - capex. For a company like CRM, which likes to focus investors' minds on revenue growth, it is a serious mistake to omit cash outflows from acquisitions when calculating free cash flow, since much of their growth is financed via acquisition.
23 Feb 2012, 07:27 PM Reply Like

SA Editor Eric Jhonsa Comments (563)
 
Fair point that acquisitions should be taken into account when looking at revenue growth. Though I doubt that this year's acquisitions (Radian6, Assistly, etc.) had an enormous impact on FY12 revenue. At the time of the deal, Salesforce said Radian6 (easily its biggest deal) would increase it FY12 revenue by $45-50M, or about 2% of total FY12 revenue.

Businesses are typically valued based on their net cash/investments and estimated future free cash flow. If you assume that Salesforce doesn't make another acquisition for all of FY13, chances are that its free cash flow will still be higher than FY12's $440M. That gets swept under the table if the company is declared to be cash flow negative because of acquisitions.
23 Feb 2012, 07:47 PM Reply Like

Jay Schembs Comments (67)
 
If these acquisitions are not having an impact on revenue growth, CRM is vastly overpaying for these businesses. This isn't surprising, given the historical record of tech acquisitions. Either way, I think we're in agreement the company didn't generate any cash in FY2012.

I agree that value ultimately depends on estimates of future free cash flow. Even if CRM decided to halt acquisitions to boost FCF, 75% of their 2012 operating cash flow came from increases in deferred revenue, which among other things makes for a very low quality earnings stream.
23 Feb 2012, 07:58 PM Reply Like

golfwinch Comments (6)
 
It is hard to short anything in this market.
23 Feb 2012, 08:04 PM Reply Like

Doyle3000 Comments (732)
 
amen brother - the trend is not our friend. I'm shocked that this market is running so hot with Greece basically defaulting, the price of the average home still dropping in most cities and gas at $3.60. Shocking.
24 Feb 2012, 08:44 AM Reply Like

monsieurmarket Comments (245)
 
Netflix, salesforce, amazon... Need I say more? Shorting is for suckers, unless your timing of market rationality is perfect.
23 Feb 2012, 10:58 PM Reply Like

The Fox Comments (495)
 
Yeah....shorting Netflix is for suckers. It went from $340 to about $80. What a bunch of idiots that shorted that one. Are you for real, dude? Also, there is a huge difference between Netflix (going out of business soon) and Amazon.
24 Feb 2012, 07:21 AM Reply Like

monsieurmarket Comments (245)
 
yeah but u fail to mention the people who shorted on the way up to 340... who would have lost more than 200% of their money if they shorted from July 2010 to July 2011, 3 years of being wrong and only a 3 month window of being right with no possibility of gaining more than 100% of their money... and for the last 3 months even more short squeezing and Wall St manipulation for the many people who decided to come late to the short party. nobody can claim to know the exact peak at which an inflated stock decides to turn the corner. if you can, you're probably smarter than most people, my hat's off to you. can you stay solvent longer than the market decides to stay irrational? salesforce has been a good short since 2005 at $22 trading at a P/E of +300... you would have lost 6x your money if you are still waiting for that short to come to fruition. good luck knowing when you'll be exactly right.
24 Feb 2012, 12:11 PM Reply Like

JasonHarmon Comments (15)
 
So deferred revenue is growing, so are deferred expenses and operational overhead. How does that translate into bottom line earnings?--prognosis negative for the near term. Future streams of revenue less expenses still is net zero.
24 Feb 2012, 11:19 AM Reply Like

Andrew Mann Comments (901)
 
deferred revenues don't mean deferred expenses just liabilities. Haven't looked at their statements, but they probably expensed everything that contributed to these deferred revenues in the quarter they were recorded.
25 Feb 2012, 03:14 PM Reply Like

apwwest59 Comments (49)
 
They actually capitalize their sales commissions and amortize them over the life of the subscription, so the deferred revenue is misleading. According to one analyst, this practice increased their operating profit by over 40%.

http://onforb.es/xiqCrj
25 Feb 2012, 03:34 PM Reply Like

Andrew Mann Comments (901)
 
Thanks for the link. Surprised auditors aren't balking more at the aggressive/risky bookkeeping. Glad FASB is coming out with a new statement that will require commissions to be expensed as incurred.
25 Feb 2012, 03:43 PM Reply Like

apwwest59 Comments (49)
 
They aren't doing anything illegal, of course, but it does seem borderline unethical. If people looked a little closer at their financials I don't think the share price would be nearly as high as it is now, but unfortunately, as long as they are able to keep people focused on the non-GAAP numbers its probably going to stay ridiculously overvalued.
25 Feb 2012, 04:19 PM Reply Like