i am very overweight SFDC in my portfolio (down from "ridiculously overweight"; still my largest holding). I have no employment or contractual relationship to SFDC. I became a Certified Developer in the past month. My employer is a customer. I have absolutely no sources of non-public data about SFDC. That is, "data" as opposed to "information", which is what you get when you make sense of data. It is unfortunate for most investors that they cannot make sense of the details of multi-tenancy, the force.com architecture, or the metadata API, and cannot understand what is wrong with the Windows and Oracle architectures. But those who cannot understand that SFDC is making huge profits have only themselves to blame; the accounting is not that complicated.
The Safest Way To Invest In 'The Cloud' And Earn 5% Yields [View article]
Cloud, or not cloud? This is a company that leases space for your very own data center. The value proposition of Cloud is about NOT DOING THAT.
If they were providing space to Amazon, to Salesforce, or to Microsoft, OK great. But instead, those providers of cloud computing design and build their own facilities. They offer a better value than for a client to run their own data center.
So I disagree that this is a company that will grow along with cloud computing.
Not to say it is a bad stock. 5% is very nice!
At first glance, dividend coverage is very weak , with estimated forward EPS only half of expected forward dividend. But REIT accounting is different, one must examine lots of numbers , which I did not do yet.
Is Salesforce.com's Cash Flow Really Rising? [View article]
>>>An added expense to the shareholder is the dilution that >>>these increasing stock based compenstaions are causing. >>>Every quarter, the share count is rising. Wrong, that is the ONLY real expense to the shareholders. GAAP is a compromise set of rules that makes sense for most cases but distorts the picture for others. You assume that GAAP earnings always give a true picture of financial results. You are quite thoroughly wrong in that belief. But I will stop trying to convince you. You clearly have religious faith in the SEC and its reporting rules.
Is Salesforce.com's Cash Flow Really Rising? [View article]
Wrong, GAAP earnings are computed by deducting GAAP expenses from GAAP gross profit. Often, none of those are "real" the way cash is real. I did say it is a "quibble" with your semantics. But you still seem to think SFDC is losing money. They are not, it is just a distortion due to the GAAP rules. >>>Do they? So they understand that some day the increasing >>>losses will change into big profits? Then why do they never >>>explain when and how? I, for one would really like to get a >>>grip on that. Because nobody except misguided souls cares if they ever make GAAP profits. They all are watching the real cash and real assets which SFDC is rapidly accumulating. And why would they explain it to you? Ian Anderson : "I have my own chosen answer, proven to be true. But if I were to share it with you, you would stand to gain, and I to lose." Me, I am not one of them, nor a flautist, so here is their case: Soon SFDC will have annual revs of 6 Billion, and free cash flow of 3 Billion. While they continue to write off mythical "goodwill" and "stock-based compensation" GAAP expenses, and continue to dilute 5%/yr (the reality!), cash profits per share will skyrocket, along with assets, book value, and cash on hand. And they will be growing rapidly at that point. Of course, predictions about the future are the definition of "speculation". That applies to everyone, even the "pros".
Is Salesforce.com's Cash Flow Really Rising? [View article]
I must agree about emotion trumping analysis in many cases. The "mo-mo" style certainly remains in evidence. The craze for Facebook and Linked-In stock makes no sense since there is no thesis as to how those companies will make money.
OTOH, CRM can earn enough to justify its valuation. Will it? Many professionals speculate that it will.
One quibble: you confute "real" earnings with GAAP earnings. GAAP earnings fall if the stock price rises, due to stock-based compensation expenses increasing. Is that "real" ? GAAP earnings are reduced by depreciating goodwill - whch was placed on the books during acquisitions - which were paid for in stock that diluted the shares years ago. Is that "real"?
Cash money in the hand is far more real than GAAP computations.
Salesforce.com: Signs Of A Breaking Business Model [View article]
Busy hardware is even better than virtual hardware. SFDC multi-tenant architecture keeps the servers nice and busy, resulting in lower cost than if they used virtual servers.
Nothing amazing has come along since 1999 that SFDC cannot upgrade into. If virtualization would help, there is nothing stopping them.
One advantage is an open modular architecture that makes upgrades easier. It also makes it possible to integrate other systems - see "REST API", "Streaming API", "Heroku integration", "Java integration", etc etc.
Salesforce.com: Signs Of A Breaking Business Model [View article]
Good points and very clear explanations. Of course, the stock expense numbers change with the stock price, which dropped in FY11 and increased in FY12. But, considering the rate of revenue growth, there is no question that margins are falling.
I disagree that the business model is to blame. I blame management. SGA is too high. Benioff is focussed on growth at any cost. I fear he also is focussed on keeping other people happy. That's great if you're a party planner, not so much for a CEO. We owners ( I am a long) should keep him as CTO, or maybe CEO, but get a businessman as COO or CEO. Somebody cranky and mean, a Ford or Rockefeller type.
Wow, their customers are complaining how bad it is! No, they are voting CRM #1 in customer satisfaction, every year. Their offering is a hodgepodge?? ORCL is far more so. IBM managed to destroy their unified architecture - Lotus - and acquired Tivoli and others.
Workers are burned out after working hard and making tons of money? Sounds like Silicon valley - ever been there? I have. Success and burnout come from hard work.
Different languages, etc? Get to the other side of the mirror, Alice. SFDC has the ONLY unified architecture on earth. (I don't count the MSFT mess as an architecture at all. No wonder their sales of Azure are approx zero.) They have opened their architecture to the other languages and other paradigms that are popular today (Java, Ruby, Heroku, REST, streaming, web services) , but under it all is the same database and Apex language.
But the article's biggest blunder is the idea that SFDC is losing money. What they are losing is pieces of paper called "stock" and "options". What they get in return are the world's leading new companies and products and people, and, lots of cash dollars. Yes, dilution is 5% a year. I am happy with 5% dilution on a stock that increases cash flow 30%. Take an accounting course. The professionals who own almost all of SFDC stock understand this; the author clearly does not.
Cut the price but cut the benefit: instead of free shipping, give Prime customers half off shipping. In a way, it is half as good, and half as bad, as the other choices.
As requested, you are now being corrected about "Deferred Revenues". It means that they were paid already, in cash, but they did not yet provide the service. So, they book the income (and pay taxes) later, as the time of the subscription passes.
The accounting is the same as a magazine subscription.
In an indirect way, they do indeed pull off that trick. They buy other companies with stock, and they pay employees with stock options (like all dotcoms), and they pay loans off with stock (via convertibles). The cash paid for the stock and the convertible is not cashflow, it is capital. But, the employees (hopefully) cause cashflow, the acquisitions (hopefully) cause cashflow, and the use of the loans (hopefully) produces cashflow. So, by not paying cash for these things, they increase net cashflow with stock.
Do not confuse this with the reconciliation of GAAP losses with their positive cashflow. The stock and options are accounted as GAAP expenses, even though they are just ink on paper. (Of course, the real cost is dilution, but as long as we compare per-share numbers, that is already taken into account.) The higher the stock price, the higher the GAAP expenses they must book. These GAAP paper expenses are far more than the capital dollars the stock brings in.
If you compare Salesforce with other companies, be sure the other companies also are IT suppliers with billions of revenues/yr, growing > 40% yr/yr. But, there are none.
Salesforce's biggest competitive problem is that they do not offer a full suite of enterprise software. Lazy buyers (and corrupt buyers) prefer to buy it all at one place. There is no technical merit to it, since all the full-suite players offer a crazy quilt of products that arrived in acquisitions. So the acquisition strategy makes sense, if it enables them to offer a fuller line of products and to compete better.
"Organic" growth from the sales automation product is very strong, and it still can gain plenty of market share from dinosaur on-premises vendors.
But the five-year picture is all about the platform. Acquired products are integrating quickly because it is a superior platform compared to Amazon, Oracle DBMS or Windows Server. (Yes, I know that those two are components of the Salesforce platform.) Look at how fast Chatter was integrated. Look at the AppExchange.
I will not dispute your earnings projections, because they are pure speculation, and so are mine. At some point, Salesforce will stop spending so much on commissions and acquisitions, and most of their gross margin will become net margin. Don't forget that their incremental cost of goods sold is mostly bandwidth, storage, and processor cycles, which get cheaper every year.
A Look At The Net Income Trend Tells You That Salesforce.com Is Headed Downward [View article]
Ridiculous. MB has Put Up this: $4 Billion. That's the pipeline as of now, booked business that is not yet in revenue, income, & etc. He will not shut up while revenues grow 30%/yr. .
The post's points about architecture apply far more to their rivals than to SalesForce. It is true that integration - both business and technical - will be difficult and expensive. OTOH, it will be cheaper there than elsewhere, because force.com was designed to be open and to have proper interfaces. Microsoft and Oracle products? It is to laugh, they always were intended to be closed and non-standard. Look at PL/SQL, or the way MS SQL-Server does not implement ANSI SQL syntax. IBM products? What products - Lotus Notes, DB/2, and WebSphere? I laugh heartily.
And guess what? Growth and integration is where today's potential SalesForce profits are being spent.
It isn't time to cut expenses and show bottom line profits. It is time to build a company that will be a major provider of IT to companies, and nonprofits, and government.
That will cost big $. When revenues hit ten billion/yr, and the reinvestment era ends, and high commission costs end, and cost of goods (networks and CPU cycles) keep plunging, and operating margins are 90%, today's stock price will look cheap.
Benioff's Bombastic Boasting Can't Hide Salesforce's Expenses Bomb [View article]
I have absolutely no sources of non-public data about SFDC. That is, "data" as opposed to "information", which is what you get when you make sense of data. It is unfortunate for most investors that they cannot make sense of the details of multi-tenancy, the force.com architecture, or the metadata API, and cannot understand what is wrong with the Windows and Oracle architectures. But those who cannot understand that SFDC is making huge profits have only themselves to blame; the accounting is not that complicated.
The Safest Way To Invest In 'The Cloud' And Earn 5% Yields [View article]
If they were providing space to Amazon, to Salesforce, or to Microsoft, OK great. But instead, those providers of cloud computing design and build their own facilities. They offer a better value than for a client to run their own data center.
So I disagree that this is a company that will grow along with cloud computing.
Not to say it is a bad stock. 5% is very nice!
At first glance, dividend coverage is very weak , with estimated forward EPS only half of expected forward dividend. But REIT accounting is different, one must examine lots of numbers , which I did not do yet.
Is Salesforce.com's Cash Flow Really Rising? [View article]
>>>these increasing stock based compenstaions are causing.
>>>Every quarter, the share count is rising.
Wrong, that is the ONLY real expense to the shareholders.
GAAP is a compromise set of rules that makes sense for most cases but distorts the picture for others.
You assume that GAAP earnings always give a true picture of financial results. You are quite thoroughly wrong in that belief. But I will stop trying to convince you. You clearly have religious faith in the SEC and its reporting rules.
Is Salesforce.com's Cash Flow Really Rising? [View article]
>>>Do they? So they understand that some day the increasing
>>>losses will change into big profits? Then why do they never
>>>explain when and how? I, for one would really like to get a
>>>grip on that.
Because nobody except misguided souls cares if they ever make GAAP profits. They all are watching the real cash and real assets which SFDC is rapidly accumulating. And why would they explain it to you? Ian Anderson : "I have my own chosen answer, proven to be true. But if I were to share it with you, you would stand to gain, and I to lose." Me, I am not one of them, nor a flautist, so here is their case: Soon SFDC will have annual revs of 6 Billion, and free cash flow of 3 Billion. While they continue to write off mythical "goodwill" and "stock-based compensation" GAAP expenses, and continue to dilute 5%/yr (the reality!), cash profits per share will skyrocket, along with assets, book value, and cash on hand. And they will be growing rapidly at that point.
Of course, predictions about the future are the definition of "speculation". That applies to everyone, even the "pros".
Is Salesforce.com's Cash Flow Really Rising? [View article]
OTOH, CRM can earn enough to justify its valuation. Will it? Many professionals speculate that it will.
One quibble: you confute "real" earnings with GAAP earnings. GAAP earnings fall if the stock price rises, due to stock-based compensation expenses increasing. Is that "real" ? GAAP earnings are reduced by depreciating goodwill - whch was placed on the books during acquisitions - which were paid for in stock that diluted the shares years ago. Is that "real"?
Cash money in the hand is far more real than GAAP computations.
Salesforce.com: Signs Of A Breaking Business Model [View article]
Nothing amazing has come along since 1999 that SFDC cannot upgrade into. If virtualization would help, there is nothing stopping them.
One advantage is an open modular architecture that makes upgrades easier. It also makes it possible to integrate other systems - see "REST API", "Streaming API", "Heroku integration", "Java integration", etc etc.
Salesforce.com: Signs Of A Breaking Business Model [View article]
I disagree that the business model is to blame. I blame management. SGA is too high. Benioff is focussed on growth at any cost. I fear he also is focussed on keeping other people happy. That's great if you're a party planner, not so much for a CEO. We owners ( I am a long) should keep him as CTO, or maybe CEO, but get a businessman as COO or CEO. Somebody cranky and mean, a Ford or Rockefeller type.
Benioff's Bombastic Boasting Can't Hide Salesforce's Expenses Bomb [View article]
Workers are burned out after working hard and making tons of money? Sounds like Silicon valley - ever been there? I have. Success and burnout come from hard work.
Different languages, etc? Get to the other side of the mirror, Alice. SFDC has the ONLY unified architecture on earth. (I don't count the MSFT mess as an architecture at all. No wonder their sales of Azure are approx zero.) They have opened their architecture to the other languages and other paradigms that are popular today (Java, Ruby, Heroku, REST, streaming, web services) , but under it all is the same database and Apex language.
But the article's biggest blunder is the idea that SFDC is losing money. What they are losing is pieces of paper called "stock" and "options". What they get in return are the world's leading new companies and products and people, and, lots of cash dollars. Yes, dilution is 5% a year. I am happy with 5% dilution on a stock that increases cash flow 30%. Take an accounting course. The professionals who own almost all of SFDC stock understand this; the author clearly does not.
Amazon's Prime Pickle [View article]
Salesforce.com Grossly Overvalued [View article]
Salesforce.com Grossly Overvalued [View article]
Salesforce.com Grossly Overvalued [View article]
The accounting is the same as a magazine subscription.
Salesforce.com Grossly Overvalued [View article]
Do not confuse this with the reconciliation of GAAP losses with their positive cashflow. The stock and options are accounted as GAAP expenses, even though they are just ink on paper. (Of course, the real cost is dilution, but as long as we compare per-share numbers, that is already taken into account.) The higher the stock price, the higher the GAAP expenses they must book. These GAAP paper expenses are far more than the capital dollars the stock brings in.
If you compare Salesforce with other companies, be sure the other companies also are IT suppliers with billions of revenues/yr, growing > 40% yr/yr. But, there are none.
Salesforce.com Grossly Overvalued [View article]
"Organic" growth from the sales automation product is very strong, and it still can gain plenty of market share from dinosaur on-premises vendors.
But the five-year picture is all about the platform. Acquired products are integrating quickly because it is a superior platform compared to Amazon, Oracle DBMS or Windows Server. (Yes, I know that those two are components of the Salesforce platform.) Look at how fast Chatter was integrated. Look at the AppExchange.
I will not dispute your earnings projections, because they are pure speculation, and so are mine. At some point, Salesforce will stop spending so much on commissions and acquisitions, and most of their gross margin will become net margin. Don't forget that their incremental cost of goods sold is mostly bandwidth, storage, and processor cycles, which get cheaper every year.
A Look At The Net Income Trend Tells You That Salesforce.com Is Headed Downward [View article]
The post's points about architecture apply far more to their rivals than to SalesForce. It is true that integration - both business and technical - will be difficult and expensive. OTOH, it will be cheaper there than elsewhere, because force.com was designed to be open and to have proper interfaces. Microsoft and Oracle products? It is to laugh, they always were intended to be closed and non-standard. Look at PL/SQL, or the way MS SQL-Server does not implement ANSI SQL syntax. IBM products? What products - Lotus Notes, DB/2, and WebSphere? I laugh heartily.
And guess what? Growth and integration is where today's potential SalesForce profits are being spent.
It isn't time to cut expenses and show bottom line profits. It is time to build a company that will be a major provider of IT to companies, and nonprofits, and government.
That will cost big $. When revenues hit ten billion/yr, and the reinvestment era ends, and high commission costs end, and cost of goods (networks and CPU cycles) keep plunging, and operating margins are 90%, today's stock price will look cheap.