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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 :

http://bit.ly/xbfUcM

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.