

Salesforce.com: Putting Lipstick on a Pig - Jd
http://seekingalpha.com/article/271139-salesforce-com-putting-lipstick-on-a-pig

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richardburton
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?”

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

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usaar333
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.

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hessenwolf
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.

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blrgeek
$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 :).

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hessenwolf
Thank you.

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VSpike
Unsure why this is hacker news?

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bluesnowmonkey
Unsure why you used a question mark?

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jasonkester
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.

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blrgeek
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!

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jasonkester
Thanks for the translation.

The thing that pushed my buttons about that article is that he could have
included a single sentence at the beginning that brought his readers up to
speed on what he was talking about. You've done an excellent job of doing just
that.

On the other hand, finding the context and definitions you gave would take
maybe 10 minutes of Googling and tracking down other articles about the
company in hopes of finding out what they're doing wrong. That's a lot to
invest before I even get a chance to read the first sentence of this article.

It's like you're sitting in your office sipping your morning coffee, when a
disgruntled employee bursts in and launches off on a tirade starting with the
words "And another thing..."

Clearly he's been thinking a lot about this, possibly discussing it with other
people, but he hasn't with _me_ , his boss (or his reader in the case of the
article). The correct response in these situations is along the lines of
"Whoa, hang on a second. Let's take a step back and start at the beginning.
Now, what is on your mind?"

Keep that in mind when writing, and you'll write better. Even if you think
your target audience is fully up to speed, spend a few words to make sure.

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encoderer
To be fair, Seeking Alpha is a (great) Stock Market & Finance website. That
would be like criticizing the CLANG at Google post that's currently on the
front page because the average person that stumbled on it wouldn't have a clue
what it all meant.

The only problem was that it was submitted to HN, which is not a finance-
oriented website.

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jasonkester
Not true. I don't know anything about compilers or C++ in general, but I was
able to read that entire CLANG post and understand what it was talking about.

It's actually a good example of a technical article intended for a technical
audience yet written to be understandable by a lay person.

~~~
encoderer
You're a programmer. In discussions about programming--even an unfamiliar
language--you are not a "Lay Person."

I hope you can see the flaw in your analogy here. The CLANG article didn't
include a sentence at the top telling you what a compiler is, what a pointer
is, etc. You knew because you were part of the target audeience: people with
programming knowledge.

The Seeking Alpha article target audience was: People who are active investors
and interested/knowledgeable wrt finance.

Normally I wouldn't waste my time with comments like this but you said it's
the worst submission to HN all year! And in reality, it's a very informative
article that just happened to be using jargon you're unfamiliar with.

