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Ed Porter
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Wealth manager. Wide experience gained over 30 years in a variety of markets and instruments.
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  • How Much Will That $10 Billion Cost You Marc?

    So CRM supremo Benioff can't help himself and couldn't resist mentioning his 'dream' of a company with $10 billion annual revenue.

    Pray tell me Marc - I'm dying to know - will you still be making $1.60 EPS in funny money and a loss in real money when you have $10 billion annual revenues?

    Look, these guys MAY have great software, and they MAY grow for eons in terms of top line, but have you ever stopped to consider that even though they keep beating revenue guidance and putting it higher and higher, they never increase their EPS?

    It's not even difficult to understand - in general terms, they spend $1.05 to earn $1.00 It's not smart business and Benioff wouldn't know a genuine profit if he tried. If he did, he would be keen to start to mention what EPS forecasts he sees for, say, 2016. The reason he doesn't is because he doesn't care!

    One final thought - a specific question was asked in the earnings call regarding Cisco's comments - and the question was "how was April for new billings?".

    Benioff, quite simply, did NOT answer the question - he referred, again, to the "biggest deal ever" signed in March, and talked of what a good quarter it was.

    Look, the guy is a shill. If he could have answered the specific question positively, he would have! You can bet the house he would have! So, what does it tell you? Be wary - be very wary indeed.

    The time to be short is not necessarily now (although ultimately any short at any price near here will end up paying hugely) - no, the real best time will be in 3 - 4 months time when people start to realise the tricks currently used to show lovely deferred revenue numbers are one-off in nature.

    In the call, the CFO himself even spoke of the "sequential headwind" that the change in deferred revenue is creating.

    The warning signs are all there.... the revenue will keep on growing - but they'll continue to make NO PROFIT. Why would you ever invest in such a company?

    Disclosure: I am short CRM.

    May 17 7:36 PM | Link | Comment!
  • What price does Salesforce's revenue expansion come at ?
    Morgan Stanley released some information today after a conversation with Salesforce CFO Graham Smith.

    The note referred to a 40% increase in headcount at Salesforce this YEAR, including a record in Q4. So, yes, revenue is growing rapidly, but so are employee expenses.

    What we have is basically an ongoing expansion of a business model that we already know is commercially unviable. Where are the profits ? It is no surprise at all that 2012 is picked to be a loss, when expenses are increasing forever more.

    All in all, when the market seems to be obsessed with revenue, regardless of what price the revenue comes at, I really have to wonder at the average intellect of 'the market'.

    I note when Salesforce recently dipped to $100ish, we saw no let-up whatsoever in employees (including wealthy ones such as the CFO) selling shares in the market as soon as they are vested. That tells me that even when the stock price is down 25%, the employees still think it awfully good value for them to sell them at those "depressed" prices.

    And although it's now over a year old, let's gently remind ourselves of just how much stock the CEO was keen to sell in 2010 :

    You might need a decent calculator to add all that up.

    All in all the product the company offers might be OK and the company might be 'well run', but in commercial terms it has no substance, and the share price will eventually reflect this. Expect that share price to be substantially under $50.

    Stay short, Get short, Be short. As if you needed a disclosure from me, I am.
    Jan 19 8:29 PM | Link | Comment!
  • Salesforce's inability to give earnings guidance tells you all you need to know
    I mean, seriously, who are they kidding ?  

    When asked about earnings guidance for FY 2013 at the earnings release on 17 November, we are told that they have "great visibility" on revenue, but that is "easier than working through all the detail of the P and L and cashflow".

    What ?   A $17 billion cap company (well, before it went for 15% post-results) is not able to prepare a 1 year P and L forecast because it contains "detail" ?   Man, if I was a shareholder, I'd be rather hopeful they had a 10 year plan, let alone a 5 year plan, let alone a 1 year plan, but, no, even that short term horizon apparently is too complex for the company to portray.

    But hey, that's OK, isn't it, because as Salesforce tell us "we've never provided that guidance".

    Ask yourself this.   "If this company was highly profitable, do you really think for a second they would still decline to give earnings guidance ?".

    Yet again, we are told next years revenue will show impressive growth.  But the problem for shareholders is that none of it is translating to the bottom line.  In simple terms, everything they are earning is being doled out in employee related expenses.

    The inconvenient reality for the business model that Salesforce operates under, is that a fall in stock price, in itself, is enough to threaten the very viability of that model.  In simple terms, employees will still receive stock as compensation, but they won't be able to sell it for as much, and so their overall package has declined.
    The only way the company can keep things on an 'equal footing' is to issue even more shares to employees, which acts to even further dilute shareholders. 

    So, Salesforce very much fits the bill of a company whose own interests are greatly served by a high shareprice. That means, in turn, that they go out of their way to keep that shareprice pumped up as high as possible.    The problem is for Salesforce that they have now hit a major inflexion point in that the street now wants to see some hard profitability, and the company, unfortunately seems quite incapable of delivering it. 

    It seems likely we have reached the last quarter or two of the shareprice being totally deluded, before the true re-rate comes - one which more fully reflects the total absence of underlying profitability.

    At that point, one of the questions, amongst others, will be "how well can Salesforce retain its, um, salesforce, with its shareprice at, say $50 ?".   The answer, as I see it, is "It will not able to, except if it (likely) decides to accelerate the rate of shareholder dilution by issuing ever increasing numbers of shares".

    The silly thing is, you barely even need to know what Salesforce actually is or does, in order to know that this company's business model is simplistically and ongoingly transferring wealth from shareholder to employee - on a massive scale.

    When, and if, the company actually starts making GAAP profits (yes, they are the ones that matter, by the way), the sheer amount of stock that will share in those profits will mean an EPS which in no way justifies the current shareprice or anything close to it.   Some might even say "Man, if they can't turn a GAAP profit in FY 2013 or perhaps even FY 2014, then, um, shouldn't the shareprice be perhaps no higher than $20 ?

    Salesforce may have good products, Salesforce may be a market leader, Salesforce may be well run.   But none of that automaticlly means it is therefore a stock you need to own.  In simple terms, if you want to be involved with Salesforce, you want to do it as an employee rather than a shareholder.

    If you are the latter, I regret to inform you that you barely even register in terms of what Salesforce actually, truly, really care about.

    Disclosure: I am short CRM.
    Tags: CRM, Short Ideas
    Nov 18 5:28 PM | Link | Comment!
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