Sunday, September 9, 2012

SalesForce (CRM) Reports 7th Consecutive Operating Loss, Ongoing Loss per Share

SalesForce reported QE July 2012 financial results on August 23

The quarterly CRM tent revival earnings report and conference call, hosted by CEO Marc Benioff and introduced as in a "good mood", revealed a 7th consecutive quarterly operating loss (-$13.47 million) and 5th consecutive quarterly net loss (-$9.83 million). These are now a cumulative -$71.19 million and -$51.59 million, respectively, since this losing streak began. No matter, CEO Benioff's robust disconnect from reality assures investors there is no trouble in paradise and everything is better everyday everywhere.

GAAP Quarterly Financial Result, QoQ Change, YoY Change
Total Assets: $4.45 billion, +7%, +30%
Revenues: $731 million, +5%, +50%
Net Loss: -$9.83 million, +50%, +130%
Loss per Share: -$0.07, +50%, -133%
Cash Flow per Share $0.98
1-Year Return on Assets -1.20%

The 5th consecutive GAAP loss per share of (-$0.07) for the QE July 2012 was actually an improvement from the prior quarter (-$0.14). SalesForce touts "better" Non-GAAP financial results (see explanation below), which exclude significant, and important, expenses. Please note Apple and Microsoft report only GAAP results and don't even bother with Non-GAAP data. They don't have to. Unless otherwise noted, results below are GAAP. Cutting through the hype, the SalesForce GAAP earnings (loss) per share performance is thus:

The Benioff Accounting Method: "Q2 GAAP net loss per share was ($0.07), and non-GAAP diluted earnings per share was $0.42. The company's non-GAAP results exclude the effects of $85 million in stock-based compensation expense, $20 million in amortization of purchased intangibles, and $6 million in net non-cash interest expense related to the company's convertible senior notes. Non-GAAP EPS calculations are based on approximately 146 million diluted shares outstanding during the quarter, including approximately 3 million shares associated with the company's convertible senior notes. GAAP EPS calculations are based on a basic share count of approximately 139 million shares." In other words, Benioff prefers to exclude his and others stock compensation when he tells you how much money SalesForce is making. If he included these material costs, he'd have to spin a much more complex tale and we would all end up very confused.

(The Good) Marc Benioff is a cloud visionary and evangelist plus a consummate promoter. (The Bad) Translating this to financial performance to maximize shareholder wealth (ours, not his) is unfortunately not part of his divine dispensation. (The Ugly) Shareholders, other than Benioff and his team, are bothersome in his grand revelation.

The gist of CEO Benioff's spiel is ever-increasing revenues, integration of social media into the CRM platform, beating Oracle, promoting his tent revivals (conferences), and a general 'onwards and upwards forevermore' tone, including ultimately $10B annual revenues. Benioff’s enthusiasm and entertainment talent is contagious - you cheer for him and hope he can fulfill his vision, but realize you are not ultimately part of the benefits of that vision. This is the same formula utilized by promoters on the Trinity Broadcasting Network: they talk, you listen, you give, they take. (CRM) Outlook QE October 2012 Revenue for the company's third fiscal quarter is projected to be in the range of $773 million to $777 million, an increase of approximately 32% to 33% year-over-year. GAAP net loss per share is expected to be in the range of ($0.26) to ($0.27), while diluted non-GAAP EPS is expected to be in the range of $0.31 to $0.32.

"Our second quarter revenue growth was outstanding at 34% in dollars and 37% in constant currency," said Marc Benioff, Chairman and CEO, "'s social enterprise strategy is enabling companies to connect with customers, partners, and employees in completely new ways – and it's creating new opportunities for their growth and ours."


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