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Salesforce.com: Putting Lipstick on a Pig

58 points by Jd 15y ago

richardburton 15y ago
God bless the accountants. This reminds me of a great quote by Warren Buffett: “If stock options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world do they go?”
Jd 15y ago
DHH says: "Much more brutal takedown of $CRM than I could ever do."
usaar333 15y ago
On the other hand, GAAP requirements cause a rapidly growing company's income to be reduced due to its own stock price fluctuations: 1) The cost of the issued option must include time value of the stock. If a company's stock becomes more volatile, for whatever reason, their GAAP income appears to be reduced. 2) If a company's stock rises, the options vesting appear to be worth more and more. In other words, the mere act of the stock price rising depresses income.
VSpike 15y ago
Unsure why this is hacker news?
- bluesnowmonkey 15y ago
  Unsure why you used a question mark?
jasonkester 15y ago
So many undefined acronyms. So little context. So many numbers thrown out for no apparent reason. He's clearly upset with something and thinks he has an important point to make. But he makes no attempt to explain what he's upset about or make that point in a way that anybody but him can parse. I'm going to cast my vote for the most poorly written HN submission yet this year.
- 18pfsmt 15y ago
  I find your comment quite interesting because I'm so familiar with financial terms/ acronyms, and read earnings reports all the time. On the other hand, here on HN I am _constantly_ looking up terms (new to developing). Seekingalpha is a financially-focused site, so one should expect a fair amount of jargon. If you scroll down to the comments, you will not see anybody stating the author is talking nonsense. I think you might find it more interesting if you look up the terms with which you are not familiar like GAAP (Generally Accepted Accounting Principles) or EPS (Earnings Per Share), He's pretty much quoting the SEC filings from CRM (Salesforce's ticker symbol) themselves.
  - hessenwolf 15y ago
    I read financial times and bloomberg most days. No term goes undefined. I am constantly impressed by how they can slip in the explanations so smoothly, and that they never presume the audience is already familiar.
- blrgeek 15y ago
  I actually found this quite well reasoned and the acronyms are pretty common in any financial analysis. Must read for anyone investing in the market to see how companies cheat! tl;dr If Salesforce(ticker: CRM) is paying execs in stock, it should count as an expense and they have a loss this year. CRM is cheating by showing earnings based on non-standard accounting (leaving out stock compensation) when it suits them, while touting earnings based on standard accounting when it doesn't! GAAP - Generally Accepted Accounting Principles - stock compensation should be accounted as expense. non-GAAP - our own set of accounting principles, which we stick to every year. Allows us to 'leave out' stock compensation, increasing the earnings per share (EPS) while leaving out the dilution that takes place! Also note, they give stock based compensation of $117MM this year & expect to give out DOUBLE next year - $238MM! So on a non-GAAP basis next year if they double their earnings, on a GAAP basis they will still be only breakeven!
  - ErrantX 15y ago
    This is how the submission should have started. :) Thanks, it now makes for a lot easier reading.
hessenwolf 15y ago
Why did he ignore the other $71 million? That's a fair chunk. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $238 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $60 million, and non-cash interest expense related to the convertible senior notes, expected to be approximately $11 million.
- blrgeek 15y ago
  $60MM is non-recurring acquisition expense - capital expenditure is an asset - and therefore not an 'expense' this year. In his intro his statement that there is a problem with 'convertible bonds' refers to this $11MM non-cash interest expense on the convertible senior notes. On the convertible notes, the accrued 'non-cash interest expense' (which is not an expense (: ) will eventually convert to stock and dilute stock holders. The stock-based compensation is now $117MM and doubles to $238MM next year and is a huge hit on their earnings, current and future. Compared to the pitiful $11MM 'non-cash interest expense' which is not an expense :).
  - hessenwolf 15y ago
    Thank you.

58 points by Jd 15y ago

God bless the accountants. This reminds me of a great quote by Warren Buffett: “If stock options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world do they go?”

Jd 15y ago

DHH says: "Much more brutal takedown of $CRM than I could ever do."

usaar333 15y ago

On the other hand, GAAP requirements cause a rapidly growing company's income to be reduced due to its own stock price fluctuations: 1) The cost of the issued option must include time value of the stock. If a company's stock becomes more volatile, for whatever reason, their GAAP income appears to be reduced. 2) If a company's stock rises, the options vesting appear to be worth more and more. In other words, the mere act of the stock price rising depresses income.

VSpike 15y ago

Unsure why this is hacker news?

bluesnowmonkey 15y ago
Unsure why you used a question mark?

jasonkester 15y ago

So many undefined acronyms. So little context. So many numbers thrown out for no apparent reason. He's clearly upset with something and thinks he has an important point to make. But he makes no attempt to explain what he's upset about or make that point in a way that anybody but him can parse. I'm going to cast my vote for the most poorly written HN submission yet this year.

18pfsmt 15y ago
I find your comment quite interesting because I'm so familiar with financial terms/ acronyms, and read earnings reports all the time. On the other hand, here on HN I am _constantly_ looking up terms (new to developing). Seekingalpha is a financially-focused site, so one should expect a fair amount of jargon. If you scroll down to the comments, you will not see anybody stating the author is talking nonsense. I think you might find it more interesting if you look up the terms with which you are not familiar like GAAP (Generally Accepted Accounting Principles) or EPS (Earnings Per Share), He's pretty much quoting the SEC filings from CRM (Salesforce's ticker symbol) themselves.
- hessenwolf 15y ago
  I read financial times and bloomberg most days. No term goes undefined. I am constantly impressed by how they can slip in the explanations so smoothly, and that they never presume the audience is already familiar.
blrgeek 15y ago
I actually found this quite well reasoned and the acronyms are pretty common in any financial analysis. Must read for anyone investing in the market to see how companies cheat! tl;dr If Salesforce(ticker: CRM) is paying execs in stock, it should count as an expense and they have a loss this year. CRM is cheating by showing earnings based on non-standard accounting (leaving out stock compensation) when it suits them, while touting earnings based on standard accounting when it doesn't! GAAP - Generally Accepted Accounting Principles - stock compensation should be accounted as expense. non-GAAP - our own set of accounting principles, which we stick to every year. Allows us to 'leave out' stock compensation, increasing the earnings per share (EPS) while leaving out the dilution that takes place! Also note, they give stock based compensation of $117MM this year & expect to give out DOUBLE next year - $238MM! So on a non-GAAP basis next year if they double their earnings, on a GAAP basis they will still be only breakeven!
- ErrantX 15y ago
  This is how the submission should have started. :) Thanks, it now makes for a lot easier reading.

hessenwolf 15y ago

Why did he ignore the other $71 million? That's a fair chunk. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $238 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $60 million, and non-cash interest expense related to the convertible senior notes, expected to be approximately $11 million.

blrgeek 15y ago
$60MM is non-recurring acquisition expense - capital expenditure is an asset - and therefore not an 'expense' this year. In his intro his statement that there is a problem with 'convertible bonds' refers to this $11MM non-cash interest expense on the convertible senior notes. On the convertible notes, the accrued 'non-cash interest expense' (which is not an expense (: ) will eventually convert to stock and dilute stock holders. The stock-based compensation is now $117MM and doubles to $238MM next year and is a huge hit on their earnings, current and future. Compared to the pitiful $11MM 'non-cash interest expense' which is not an expense :).
- hessenwolf 15y ago
  Thank you.