Salesforce.com: $17 Billion Market Cap For Money Losing Company; Let’s Throw a Party!
You’ll notice above that the realities of business – making a profit, namely – appear to have become decoupled from the stock price at Salesforce.com (CRM), the cloud computing company with the famously-fun CEO and co-founder, Marc Benioff.
Benioff, a 6-foot-five, 290-pound born salesman, apparently, is a billionaire, thanks to his 10 million or so Salesforce shares. He also sold a few million shares in recent years, smartly hedging his bet. And outside investors with paper gains on Salesforce shares might want to emulate the big man because stocks of money-losing companies don’t stay aloft forever. Sales and marketing costs at Salesforce eat up more than half of revenue, so it’s in the red.
What’s so expensive about selling cloud computing services? Reading a fabulous profile of Benioff in Fortune magazine – on the occasion of Salesforce being named the 27th best company in the U.S. to work for – one gets a few hints:
A $2 million employee Christmas party. Sales conferences serenaded by the likes of Metallica. Tony Robbins, motivational speaker (his voice is Benioff’s ring tone), paid $200,000 for an appearance. Just-out-of-college engineers getting $100,000 salaries. Sales people “can earn millions.” A huge new headquarters south of downtown San Francisco under construction.
Good times. Who wouldn’t want to work there?
And there’s this fact, a bit incongruous for a best-place-to-work: Salesforce hired 3,100 full-timers last year, Fortune reports, with existing employees receiving bonuses for referring candidates. That’s a ton of newbies for an outfit that employed only 5,306 at January 31, 2011 (and is likely somewhat over 6,000 workers now), and suggests some hair-raising employee turnover. This ain’t Arby’s, after all. Could the Salesforce telemarketing and in-person sales jobs be too wearying for most mortals? Could training all the newbies be costly and a drag on sales productivity?
It would be nice to relate that, while sales and marketing costs are sky-high, Benioff has figured out how to skimp on other stuff, but that doesn’t seem to be the case. Sales for the nine months ended October 31 rose 36%, to $1.6 billion. So keeping cost categories to increases of 36% or less would be nice. But sales and marketing costs during that period rose 50%. Eeek. R&D was up 62%. General and administrative stuff was up 39%. Nobody’s going to mistake our man Benioff for Neutron Jack Welch.
Some managers might be too embarrassed by such numbers to show their faces. But Benioff isn’t shy. In the third-quarter earnings release, he crows: “Salesforce.com is the first enterprise cloud computing company to exceed a $2.3 billion annual revenue run rate.” Sort of like bragging about your kid’s B in Phys Ed.
There was a time, at least, when Benioff himself was a cheap hire. In fiscal years 2007 and 2008, for instance, he took a token ten dollars as compensation each year. Since then, though, it has become clear that Benioff can’t be bought off by a mere Tony Robbins ring tone. His total compensation was $7.5 million in fiscal 2009, $9.1 million in fiscal 2010 and $20.8 million in fiscal 2011.
Most of that was in options. Benioff would have qualified for this tirade against CEOs, already sitting on equity valued at more than $100 million, who award themselves additional equity, except for Salesforce.com’s late fiscal year end.
Salesforce.com competes against the likes of Oracle (ORCL), Microsoft (MSFT), IBM (IBM) and SAP (SAP). Salesforce.com’s income from operations for the nine months ended October 31 -- before taxes and interest and investment income – suffered a $127 million negative swing vs. a year earlier, from a positive $97.9 million to a negative $28.7 million. The net loss for the nine months was $7.5 million vs. a year-ago net profit of $53.6 million. These results aren’t obscured by big one-time items. Salesforce.com just spends too much.
Filed under: Company Analysis