Author Topic: CRM - Salesforce.com  (Read 53008 times)

fareastwarriors

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Re: CRM - Salesforce.com
« Reply #150 on: November 19, 2015, 08:00:32 AM »
Maybe companies like their products but, as an employee, I hated it. Forgot the name of  product I used but it was crap. Thank goodness I don't have to work with it again.

I wish them well.


Liberty

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Re: CRM - Salesforce.com
« Reply #151 on: November 30, 2018, 07:21:22 AM »
So this used to be an almost consensus short a few years ago. At the time, I remember CRM being constantly mentioned all over the forum in multiple threads as an example of an overvalued company.

I was looking back through this thread to see what could be learned, and thought I'd bump it up in case anyone wanted to do the same or add something about it with the benefit of hindsight.

Liberty

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KCLarkin

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Re: CRM - Salesforce.com
« Reply #153 on: March 18, 2019, 08:20:53 AM »
So this used to be an almost consensus short a few years ago. At the time, I remember CRM being constantly mentioned all over the forum in multiple threads as an example of an overvalued company.

I was looking back through this thread to see what could be learned, and thought I'd bump it up in case anyone wanted to do the same or add something about it with the benefit of hindsight.

Even with the benefit of hindsight, I don't think we have learned much with this one. The bull and bear cases remain exactly the same. I don't think you can resolve this debate until the growth slows down. Presumably, it will become a cash cow and justify the current valuation. On P/S, it doesn't look too overpriced to me.

Still not seeing great FCF conversion. It is printing stock like crazy (which is major source of FCF). Bulls will argue that GAAP earnings don't reflect owner earnings because of growth investments and customer acquisition costs. Bulls are correct here, but I am still surprised that this thing isn't already gushing cash. Yes, they are investing for growth but they also collect up front. I'm guessing they just don't have good cost discipline.

It has sustained high growth longer than I expected. But it is still pretty small, so could keep going for a long time.

Vish_ram

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Re: CRM - Salesforce.com
« Reply #154 on: March 18, 2019, 09:34:25 AM »
So this used to be an almost consensus short a few years ago. At the time, I remember CRM being constantly mentioned all over the forum in multiple threads as an example of an overvalued company.

I was looking back through this thread to see what could be learned, and thought I'd bump it up in case anyone wanted to do the same or add something about it with the benefit of hindsight.

I hope you did read some of my comments where I cautioned the shorts. The lesson is, high growth companies that aren't burning cash and leading the industry will trade at higher valuations in bull market and high in bear markets. The so called value investors cannot comprehend the "g" portion of the value equation. Folks will happily buy a dying company when it trades in single digit P/E with book value that will prove to be nothing.

I learnt my lesson and bought AMZN at 600. I should have bought it at 25, but overstayed in value camp.

My lesson is, avoid cash burning growing company that needs huge capex, capital outlay, offering commodities etc.

Liberty

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Re: CRM - Salesforce.com
« Reply #155 on: March 18, 2019, 11:13:03 AM »
I think another lesson is that many value investors didn't have the tools to evaluate the value of a SaaS company where there are high upfront customer acquisition costs but the recurring lifetime value of customers is positive for each cohort (but new cohorts hide current profitability, since as much as possible is re-invested in growth).

Vish_ram

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Re: CRM - Salesforce.com
« Reply #156 on: March 18, 2019, 11:31:40 AM »
I think another lesson is that many value investors didn't have the tools to evaluate the value of a SaaS company where there are high upfront customer acquisition costs but the recurring lifetime value of customers is positive for each cohort (but new cohorts hide current profitability, since as much as possible is re-invested in growth).

It is not just SaaS. It is having the right framework to understand sticky biz with growth attached. The biz also has the potential to expand the product offerings, add-ons that kind of expand the empire. It is like they sell you a hand kerchief and soon start selling pants, shirts, socks etc. I once worked for Oracle, they first sold database, then Oracle GL, AR, AP etc , slowly moved to manufacturing, CRM etc. I used to watch Oracle trading at 40 times cash flow, but growing very fast. I always used to wonder how can one justify owning Oracle. In the years it returned many times over.

The thing to watch for is if we are in a massive bubble (Nasdaq in 2000 was once in a lifetime tech bubble. Remember cisco was trading at 100 times sales).

Last few years, I have bought small positions in many SaaS/software and have done well (AYX, SLP, ZUO, PLAN, NEWR, TWOU...)

Another approach is to own XSW (or other tech etf's) and just forget about it.

A simple thumb rule is, Never short growth stocks. There are easier ways to lose money without heartache.

I can understand having trouble projecting growth. I made the mistake of thinking ULTA can never keep growing, but look at the last 10 year inc statement. Who could have imagined that??

SHDL

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Re: CRM - Salesforce.com
« Reply #157 on: March 18, 2019, 03:10:33 PM »
I have no opinion on this company, but a general observation is that if you look at the history of successful growth companies in their early days, like say Walmart in 1975, one thing that really stands out is that you could have paid comically high multiples of their TTM EPS to buy their stock and still done very well over the following decades.  The flip side is that if you shorted the stock of such a company just because the multiples look a bit high you would have done rather poorly.

So I think Vish_ramís rule of thumb above is a good one. 

fuzzhead1506

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Re: CRM - Salesforce.com
« Reply #158 on: March 27, 2019, 09:33:54 AM »
I have been a long time lurker of the forum here at COBF and for the most part I have been content to just watch the discussions instead of participate, but in the last few months there have been some posts that inspired me to spend the $20 for a membership.
It is interesting to me that consensus among the 2010 COBF crowd was long SHLD and short CRM.  I realize these are different industries and different customers but plugging some numbers into a lifetime value calculator could've put the members of this forum not just into a neutral position on these two stocks but have gone the opposite way.  Several of the Tiger Cubs of Julian Robertson were in fact just so - long CRM and short SHLD for the last decade.

Something that often reveals a lack of effort in thinking - or rather merely surface level cursory research - is when I talk with other investors and they say that a stock is cheap because of P/B or EV/EBIT but haven't thought through how a company will continue to keep the customers it has or grow the number of customers or make the customers spend additional dollars.  I don't think that I can say for sure that I am any better of a thinker in this respect than the next guy but maybe I can be the resident GARP guy.  I often remind friends or strangers that WB was able to think through the story when he made his investment with KO - it didn't just have a good valuation in the late 80's; he was able to say with pretty good confidence that Coke would be able to grow it's customer base, maintain the customers it already had, squeeze more profits out of those customers and that is pretty much exactly what it did.  Today nearly every person in the 1st world and emerging markets has a Coke product at least a few times a year and Coke products are more profitable than they were in the 80's.  This is what has made the investment a home run - not that it was cheap on a P/B ratio.  Conversely, WB stayed out of the SHLD trainwreck of the last decade by merely saying retail is a tough business.   

I would argue that CRM has been a story that has been much more difficult to wrap your head around primarily because it started from such a low number of customers.  When people use Salesforce.com however, they are more productive and this creates a flywheel effect where they get to spend more money with the platform and Salesforce can then grow the number of people that use the software. 

If there is a lesson to be learned, I think it should be that investors shouldn't stop at "the company should get a revaluation" in their research.  Think through why a company deserves a certain valuation as well.  Banks often trade at some multiple of book value close to 1 because the return on equity numbers discounted back by the 7-10% that most investors use gets you to that number.  Companies like FB and PG and BKNG and MA get higher valuations on their earnings than GM or FCAU because they are able to continue producing very high ROIC and should do so for the foreseeable future... 

Anyway - just some thoughts I had as I read Liberty's post regarding lessons learned.

Liberty

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Re: CRM - Salesforce.com
« Reply #159 on: March 27, 2019, 12:21:13 PM »
Welcome to the forum, fuzzhead. Excellent first post!