By Jeff Bailey
Thank goodness we at YCharts write about stocks instead of shorting them. If we’d shorted shares of Salesforce.com (NYSE:CRM) on February 7, when we wrote this unkind article, we’d have gotten creamed.
CRM data by YCharts
And yet, is there a more compelling tech stock to dislike? As one sees here, Salesforce.com’s market cap keeps rising, even as it becomes a money-losing company. Sort of like youth soccer – everyone gets a trophy.
One has to admire Marc Benioff, the founder and CEO of Salesforce.com – and a billionaire thanks to his 10 million or so shares in the cloud computing company. The market is rewarding him for revenue growth – about 37% in the fiscal year ended January 31 – and so that’s his mantra:
“Salesforce.com's 38% revenue growth in the fourth quarter was a spectacular finish to our fiscal year, a year in which we delivered 37% revenue growth and added nearly 2,500 employees, including nearly 2,000 in the U.S.,” Benioff said in the fourth-quarter earnings release . He added, “we're excited to raise our guidance today, which puts us on pace to exceed the $3 billion revenue run rate during FY13.”
CRM Earnings Per Share data by YCharts
Hey, that’s great, man. But how about net income?
You just won’t find Benioff agonizing over profits in either the earnings release or the 10-K, recently filed. There’s no mea culpa about the losses. No promise to cut costs and get back into the black ASAP. No hiring of some nasty outsider to curb spending.
And for anyone the least bit bummed out about the losses, simply turn to page 56 of the 10-K. There, some Non-GAAP results are displayed, a sort of dream land for tech company management. Out goes the burdensome expense associated with giving employees all that equity. Out goes the need to amortize hefty intangibles taken on in acquisitions. And voila: fiscal 2012 produces $193.6 million of Non-GAAP net income, instead of the $11.6 million net loss the uptight auditors insist upon. Wouldn’t it be nice?
You’ll notice Benioff mentioned hiring – and indeed employment grew at Salesforce.com by 2,479 during the fiscal year, or by 47%, to 7,785. That’s faster than sales grew. Headcount in R&D, marketing and sales and even the general and administrative area all increased more than sales did last year. No economies of scale here.
And, Salesforce.com informs us in the 10-K, no luck pushing through price increases on its main software offerings last year. There remains a huge slug of expense to recognize from prior equity awards. And as Salesforce.com sells to larger customers, the cost of selling may increase and pricing pressures may grow stronger. Benioff has his work cut out for him.
But at least he’s hiring.