Salesforce: The Deafening Silence

Standard

Salesforce has completed another financial year with a fizz, rather than a bang. Still no profits, flattening growth and no prospect for change. Not only that but they have learned to stay quiet. Let us see what this quarter brings us.

Drinking to Salesforce

The last quarter I introduced my Salesforce Drinking Game where the difference in the number of Non-GAAP and GAAP mentions in the transcript result in me having a drink.

scotch-glass12

This transcript was only a six-drink transcript so much less than the previous 12-drink one. The reason for this is not because Salesforce is becoming less innovative in their accounting but because Marc and the gang kept their script short to allow for more questions (and possibly because they had nothing interesting to say other than the usual revenue misdirection trick). How short? Let us go to the analysis.

Earnings Call Buzzword Bingo

Usually the transcripts run for around four thousand words or so. This one was just over 2,100. Very short and close to half of the usual Salesforce executive monologue. Not much to say so where did they focus?

 

2015 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

Number of words

4017

3495

4175

5147

2163

Customers/Customer

23

34

42

41

5

Revenue

25

24

18

16

14

Cloud

32

28

20

18

8

Platform(s)

18

14

16

13

4

Service

5

9

13

4

1

Growth

13

16

17

21

12

Cash

10

11

11

8

6

Operating

20

11

13

8

11

Dreamforce

2

1

21

7

0

Analytics

11

9

4

1

0

Software

12

4

9

10

4

The only ones to make double digits this quarter are “revenue”, “growth” and “operating” (half of these refer to Operating Cash Flow). Things like customers and the platform, usually big hitters, have totally fallen by the wayside. Keep focussed on the strong revenue growth over here, while we hide the lack of profits with non-GAAP numbers over here…

Numbers of Note

Not a lot different this quarter (or for the year for this matter). This quarter Salesforce lost another $25 million this quarter and $50 million for the year.

Transaction growth still has no correlation to revenue or cost growth, which is strange. Here is the transaction growth (quarter on quarter).

image

and here is the revenue growth (blue) and cost growth (red) (quarter on quarter).

image

If the costs of the business or the revenues were driven by the use of the software, to my mind, they should match up in some fashion but the do not. Revenues and costs have a rough correlation, especially in recent quarters but the transactions seem to move to the beat of a different drum. In fact, if anything, they seem negatively correlated. In recent quarters, when the revenues and costs go up, transactions go down and vice versa.

image

Even staff growth (which one would normally think has some correlation to costs) has no interest in matching the mysterious cost/revenue line.

Insider and Institutional Sales

 

2015 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

Insider Sales

4.60%

4.50%

4.40%

4.90%

4.90%

Institutional Sales

3.11%

3.04%

3%

5.87%

5.87%

It is strange that the numbers are exactly the same as the last quarter so I assume Yahoo has not updated them. Based on the past though, while the executive are not saying too much in their transcripts, their desire to offload Salesforce shares says plenty.

Looking into the Future

Last quarter I predicted $1.8m in revenue and a $25m loss. To put it simply, I nailed it on the head. $1.809m in revenue and a $25.5m loss.

Next quarter will be $1.9m in revenue and I will again predict Salesforce will break even.

Truth in Transcripts

Only one claim this quarter which lit the red light on the lie detector:

“you all know the growth rates of Microsoft, Oracle, SAP are shrinking” – Marc Benioff.

According to Yahoo, it is true that Microsoft’s revenues shrunk 10% year on year in the last quarter. For Oracle it is a reduction of 6.3% . However, SAP grew at 16.3% year on year in the last quarter.

Conclusions

Despite being the end of the year, not a huge amount to get excited about, other than the executive keeping quiet. Salesforce still is making losses and the lack of correlation in their drivers makes me wonder if they have their house in order. Let us see what happens next quarter.

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