Salesforce.com shares take big hit
Investors react to Wall Street Journal article citing shrinking margins
Shares of enterprise cloud computing company Salesforce.com (NYSE: CRM) fell nearly 5 percent Monday after a Wall Street Journal article poked holes in the company's recent fourth quarter financial report and basic fundamentals.
(Also see: Salesforce.com shares soar to all-time high)
Shares finished trading on Monday down 6.56, or 4.7 percent, to 132.27. On Friday, one day after Salesforce announced its Q4 and annual earnings, the stock had risen 3.4 percent after the company raised its revenue forecast for the current quarter.
But on Monday, Brett Arends of the WSJ posted a skeptical analysis of Salesforce's share value that seems to have jolted starry-eyed investors. A sample:
Salesforce's sales grew 29% last quarter, but its total operating expenses soared 40% to $365 million. As a result it actually booked a loss – of $391,000 – from operations. Even for the full year, sales rose 28% but costs rose faster, with the result that operating income actually fell by 15%. The company made a mere $97 million at the operating level out of $1.55 billion in sales.
Arends also notes that chief executive Mark Benioff has been selling a lot of CRM shares recently -- $220 million over the past year alone.
It's definitely a concern when CEOs and other major stakeholders appear to lack confidence in a stock, but it's also worth noting that Salesforce has been trading at historic highs since last spring, topping out on Dec. 9 -- less than 12 weeks ago -- at 151.26. There's nothing wrong with cashing out some shares at the right time.
The bottom line, Arends argues, is that Salesforce's fundamentals are weak and that it's an overvalued stock. On Monday, at least, he persuaded a good chunk of Wall Street. Let's see if it turns into a bargain on Tuesday. There are early indications that it will, as shares were up slightly Monday in after-hours trading.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.