sdrawkcab77

Salesforce.com Shows Strength

The only part of your analysis that was seemingly accurate was your multiple calculation, for which I give you kudos, especially considering that you use the correct metric - adjusted free cash flow. However, any multiple needs to be compared against potential growth and this is where I believe your analysis is flawed. Make no mistake, the entire SaaS industry will face intensified competition as you astutely comment and due to the reduced barriers to entry and lower switching costs (relative to on-premise models), will face enormous pricing pressure - pressure which will erode leverage for essentially the entire industry. Those businesses which are able to inexpensively acquire customers and generate a profit on each customer acquired will maintain the greatest amount of leverage and will therefore experience the greatest margin expansion - the most powerful driver of growth in adjusted free cash flow! And what's the business in the SaaS space with the greatest amount of leverage (operating not financial)? It's Salesforce.com. Maybe you have been short this last run-up and are looking for anybody to get back to shorting this stock so you can cover at a lower price. Maybe your investing career pre-dates the 2002-2003 tech fall-out and you are jaded on high-growth, high-multiple tech stocks (and who could blame you). And while I am not a fan of all high-multiple tech companies or even all of the SaaS vendors, this one (Salesforce.com) is legit.


On Dec 03 05:00 PM stocklafamilia wrote:

> You must be assuming a short recession and v-shaped recovery and
> not a protracted recession with lingering stagnant growth. I believe
> that CRM is over-priced, and now that it's trading at 20-21x 2009E
> adjusted fcf, I believe that it is setting up for a large drop, especially
> since the median sector multiple is 11-12x.
>
> Corporate spending on IT and non-essential initiatives is falling
> off of a cliff, and with so many other companies that actually have
> substantial earnings trading at fractions of their previous values
> with strong balance sheets, I see no reason why the market would
> find value in salesforce.com, which seems to be another growth story
> "cult" stock whose bubble has burst.
>
> They probably will survive the current recession due to their strong
> balance sheet, however this stock will most likely end up in the
> low teens as they fail to attract new business and burn through their
> cash trying to fight off the intensifying competition. After that
> they might be acquired by another software company or remain on their
> own, but as the market realizes that they cannot meet their current
> growth projections in this environment this stock will be crushed.
>
>
> It appears that CRM is up more as a result of market manipulation
> than any operationally-related factors, as businesses are spending
> less and cutting back more.
>
> I guess we'll be watching that declining deferred revenue q/q growth
> number in their next report to see if "seasonality"... and "foriegn
> currency" are an even larger factor this time around.