Wednesday, November 18, 2009

Salesforce -- Explain Cash Balances & Reasons Thereof

Salesforce (CRM) produced excellent results but disappointed some of their exceptionally greedy shareholder base who expected better. The stock was at or near is 52 week high and reports of 20% increase in revenues in a terrible economy were not satisfactory to this very tough crowd. Who managed those expectations? Marc Benioff?

Hmnm how to please? Well let’s look at some balance sheet issues. They currently hold approximately $1 Billion in cash and marketable securities. 60% of this balance seems to be something called a non current or long term asset; which raises enough questions on its own. This is a 600% increase since nine months ago. The cash items now constitute 13% of their market capitalization. R&D is comfortably paid for from regular cash flows.

So how do we please shareholders? Because good results apparently do not cut it here. I know lets spend some cash and do acquisitions, joint ventures cool financial engineering stuff. Then the nature of the company changes and you have to wonder if the management group is the correct team. Will the earnings be accretive and all that kind of stuff will become a factor.

Ever get the feeling that management is about to take their eye off the ball and make it sound like a complicated business school strategy case.