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What's the story with saleforce?

michaelt 3y ago
The E in P/E ratio going from $4.77 in 2021 to $0.21 in the most recent results. Presumably investors are anticipating/hoping for a return to previous levels.
- sdfghswe 3y ago
  I don't see that at all. What am I missing? https://www.tradingview.com/symbols/NYSE-CRM/financials-earnings/ https://www.tradingview.com/symbols/NYSE-CRM/financials-earn...
alberth 3y ago
Enterprise SaaS is brutal because of cashflow. A16Z even wrote an article on this 9-years ago. https://a16z.com/2014/05/13/understanding-saas-why-the-pundits-have-it-wrong/ https://a16z.com/2014/05/13/understanding-saas-why-the-pundi... Essentially, in Enterprise Sales - you have huge upfront costs to win a deal (e.g. paying commissions, pre-sales expenses like T&E, marketing, etc). And in SaaS, you only collect a small monthly fee (as opposed to On-Prem when you collected a large upfront fee all at once). So it becomes a cashflow / revenue recognition issue for these SaaS companies and you might not even be profitable until 2-years into the life of the customer contract all due to this cashflow issue. This gets compounded if you're having high growth in New sales (you go further into debt). To this point, when the market crashed in 2008 and sales slowed - that was the year that Salesforce experienced higher than normal profits.
kypro 3y ago
GAAP earnings basically consider stock based comp as an operational expense and Salesforce does a lot of stock based comp which makes their GAAP earning numbers very low. Because of this historically Salesforce has traded more reliably as a multiple of its cashflows and currently it trades at around 26x cashflows which is about right if you comp with similar companies. The argument here being that so long as they can grow their cashflows faster than they're diluting them via stock based comp then GAAP earnings aren't all that important since investor's per share cashflows are increasing. Some disagree with this though. My opinion on this is that all earnings should be taken with a grain of salt since both GAAP and non-GAAP earnings are arguably sanitised accounting numbers and not necessarily a reflection of actual financial results.
- sdfghswe 3y ago
  > GAAP earnings basically consider stock based comp as an operational expense and Salesforce does a lot of stock based comp which makes their GAAP earning numbers very low. Compensation is obviously an operational expense...

The E in P/E ratio going from $4.77 in 2021 to $0.21 in the most recent results. Presumably investors are anticipating/hoping for a return to previous levels.

sdfghswe 3y ago
I don't see that at all. What am I missing? https://www.tradingview.com/symbols/NYSE-CRM/financials-earnings/ https://www.tradingview.com/symbols/NYSE-CRM/financials-earn...

alberth 3y ago

Enterprise SaaS is brutal because of cashflow. A16Z even wrote an article on this 9-years ago. https://a16z.com/2014/05/13/understanding-saas-why-the-pundits-have-it-wrong/ https://a16z.com/2014/05/13/understanding-saas-why-the-pundi... Essentially, in Enterprise Sales - you have huge upfront costs to win a deal (e.g. paying commissions, pre-sales expenses like T&E, marketing, etc). And in SaaS, you only collect a small monthly fee (as opposed to On-Prem when you collected a large upfront fee all at once). So it becomes a cashflow / revenue recognition issue for these SaaS companies and you might not even be profitable until 2-years into the life of the customer contract all due to this cashflow issue. This gets compounded if you're having high growth in New sales (you go further into debt). To this point, when the market crashed in 2008 and sales slowed - that was the year that Salesforce experienced higher than normal profits.

kypro 3y ago

GAAP earnings basically consider stock based comp as an operational expense and Salesforce does a lot of stock based comp which makes their GAAP earning numbers very low. Because of this historically Salesforce has traded more reliably as a multiple of its cashflows and currently it trades at around 26x cashflows which is about right if you comp with similar companies. The argument here being that so long as they can grow their cashflows faster than they're diluting them via stock based comp then GAAP earnings aren't all that important since investor's per share cashflows are increasing. Some disagree with this though. My opinion on this is that all earnings should be taken with a grain of salt since both GAAP and non-GAAP earnings are arguably sanitised accounting numbers and not necessarily a reflection of actual financial results.

sdfghswe 3y ago
> GAAP earnings basically consider stock based comp as an operational expense and Salesforce does a lot of stock based comp which makes their GAAP earning numbers very low. Compensation is obviously an operational expense...