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    • Wed Sep 26th 09:39 AM | Rating: 0 0
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      Is Informatica An Acquisition Target?
      You say that CRM has an "an unreal P/E of 1,127.21," which makes me wonder if you understand their business model and how they recognize revenue.

      Traditional software companies sell permanent licenses which appear on the license line of the income statement. That revenue eventually drops down to the net income and EPS line of the income statement which gives you the traditional P:E. Salesforce.com and other SaaS vendors sell a term license which is recognized on the balance sheet as deferred revenue and then amortizes to the income statement ratably. The effect of this GAAP treatment appears to show lower license numbers. If you understood what I just wrote you will understand this does not mean SaaS companies sell less software.

      The misleading lower license number on the IS translates into a non-comparable EPS as the net income will be lower. A lower "E" compared to "P" will give astronomic P:E ratio's. Comparing SaaS companies to traditional companies using P:E is comparing apples and oranges. Try EV:Operating Cash Flow multiples instead.
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