General Consultant Discussion

We'll see if this is an anomaly or the start of a slide to worsening or flat earnings. Salesforce.com had a first-quarter net loss of $67.7 million or 12 cents a share, compared to a net loss of $19.5 million, or 4 cents a share, in the same quarter last year. Salesforce said on Thursday its non-GAAP diluted earnings per share in the first quarter were 10 cents, in line with expectations. It said it expects adjusted earnings in the current quarter of 11 or 12 cents, also in line with expectations. ""The guidance is just in line and we're used to seeing these guys raise,"" said Pacific Crest Securities analyst Brendan Barnicle. ""We see this as a buying opportunity."" http://www.reuters.com/article/2013/05/23/us-salesforce-results-idUSBRE94M15720130523

If the hands down biggest crown jewel of cloud computing in the world isn't making money, then where does everybody think, the other 200 players are going to be worth their stupid valuations???

Issuing Non-Gaap financials bothers me. Not that the company does it (as do others like Netsuite) but that the practice seems to be embraced by the financial community. I suspect that the issue with SaaS providers is going to be similar to the issues non-SaaS providers dealt with: a. Only so many Fortune 500 b. Pricing is too high c. The promises of the technology in its infancy lead to the realities as it matures. People are willing to forgive missing features, awkward integration because they believe it will be improved. If it doesn't improve the tide can/will turn fairly quickly.

I do think that the SaaS arena will have a ""come to Jesus moment"" about finances in a few years, sort of like what happened with everybody figured out that the revenue models of the internet firms in the 90's were largely smoke. Pricing is obviously not high enough if a relatively large, mature one like sf can't produced true earnings. That said, something is still amiss in either the SaaS accounting or the way capture realistic comparison costs for on prem alternatives. We should be able to show that money-losing SaaS is equal to the alternate costs of on-prem when the infrastructure unit costs of SaaS are clearly lower than on prem. Perhaps we aren't adequately adding in the extra cost of using first-rate server environment in SaaS vs. the (generally) mediocre quality of most on prem?

One more thing about sf. Its Force platform is explicitly designed to make salesforce very sticky for customers. If you actually do integrate several pieces together, it becomes an expensive PITA to leave.