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Yeah, that's exactly what I mean. Wall street rewards growth over profits so incentives for Salesforce are to keep purchasing businesses which at least break-e

by lubos 11y ago

Yeah, that's exactly what I mean. Wall street rewards growth over profits so incentives for Salesforce are to keep purchasing businesses which at least break-even (e.g. Heroku) which in turn show growth in revenue but don't necessarily translate into growth in profits. As long as Salesforce keeps buying these businesses, they can keep showing paper loss forever without actually being in any danger of running out of cash. And while they are doing this, their shareprice might double or triple. It sounds crazy that it actually works but I'm not the one who is going to argue with markets.

pedrocr 11y ago
>It sounds crazy that it actually works but I'm not the one who is going to argue with markets. It can be a great tactic if the businesses you build/buy are the same your shareholders would buy with the dividends you'd pay out since you'll save them some taxes. Since the mother company can also hope to add some value to the businesses it buys the end result can be quite interesting. Buffet's Berkshire is based on this kind of setup.
mbesto 11y ago
> Wall street rewards growth over profits That's not true, or at least it's only partially true. In the end, Wall street values discounted cash flow. As Bill Gurley has said: > So growth is good, correct? There is a reason to save growth for last. While growth is quite important, and even thought we are in a market where growth is in particularly high demand, growth all by itself can be misleading. Here is the problem. Growth that can never translate into long-term positive cash flow will have a negative impact on a DCF model, not a positive one. This is known as “profitless prosperity.” In other words, as long as you can show sustainable double digit growth, you can afford to value based on growth. If you don't and all of the sudden you can't maintain a positive DCF, the Street will hit you hard. SFDC, Amazon, etc are all teetering on the brink of collapse and equally becoming the next Walmart/Exxon. [0] - http://abovethecrowd.com/2011/05/24/all-revenue-is-not-created-equal-the-keys-to-the-10x-revenue-club/ http://abovethecrowd.com/2011/05/24/all-revenue-is-not-creat...

by lubos 11y ago

pedrocr 11y ago

>It sounds crazy that it actually works but I'm not the one who is going to argue with markets. It can be a great tactic if the businesses you build/buy are the same your shareholders would buy with the dividends you'd pay out since you'll save them some taxes. Since the mother company can also hope to add some value to the businesses it buys the end result can be quite interesting. Buffet's Berkshire is based on this kind of setup.

mbesto 11y ago

> Wall street rewards growth over profits That's not true, or at least it's only partially true. In the end, Wall street values discounted cash flow. As Bill Gurley has said: > So growth is good, correct? There is a reason to save growth for last. While growth is quite important, and even thought we are in a market where growth is in particularly high demand, growth all by itself can be misleading. Here is the problem. Growth that can never translate into long-term positive cash flow will have a negative impact on a DCF model, not a positive one. This is known as “profitless prosperity.” In other words, as long as you can show sustainable double digit growth, you can afford to value based on growth. If you don't and all of the sudden you can't maintain a positive DCF, the Street will hit you hard. SFDC, Amazon, etc are all teetering on the brink of collapse and equally becoming the next Walmart/Exxon. [0] - http://abovethecrowd.com/2011/05/24/all-revenue-is-not-created-equal-the-keys-to-the-10x-revenue-club/ http://abovethecrowd.com/2011/05/24/all-revenue-is-not-creat...