What can you say about a stock that sails above a potential acquisition price because the company underneath it delivers a quarterly report that exceeds anything anyone could possibly expect?
That's what happened last night with salesforce.com (CRM), and it is a wonder to behold.
Here's a company that had more distractions than anyone could ever dream of in one three-month period: endless takeover rumors, a battle with a state governor over civil rights, a strategic review of women's pay and titles to be sure of gender equality and competitors just taking pot shots left and right.
And what does it do in those three months? How about vastly, and I mean, vastly, exceed estimates on everything from revenue growth, to gross margins, to billings, to operating cash flow?
In fact, this was such a breathtaking quarter that I found myself thinking, before I interviewed CEO and founder Marc Benioff, that maybe, just maybe, the stock of salesforce.com is inexpensive.
Benioff's been in a race to get to be the first enterprise software company to hit multiple billion-dollar milestones and he keeps doing it, this time passing $6 billion and setting his sights on $7 billion this year, with $10 billion on the horizon.
Now, he's been making these goals and trouncing them for seven straight years.
But this quarter was a VERY different kind of quarter.
First, the standout number wasn't the spectacular 23% revenue growth -- 27% in constant currency. Nor was it that Europe is now the fastest growing and most important geography. Yes, you read that right, Europe. Nor was it that the operating margins increased by 200 basis points.
In fact, it wasn't even that there's $9 billion in deferred revenue here, if you include the $6 billion unbilled with the $3 billion that's billed -- and there's no reason not to. It is a more accurate way of looking at things, even if it is isn't "standard."
No, the big number is the operating cash flow, which was an astounding $730 million this quarter, up 54%.
Why is that number so important? Because it shows you that all along, while Benioff was in this race against himself to grow revenues, as he has distanced his company from its competitors in rate of growth a long time ago, he had a master plan most thought he wasn't even focused on -- profitability.
I have been backing Benioff for a very long time, more than 1000% worth of appreciation because I trusted him when he said that he could show profitability when the time was right. Now I am thinking he was too cautious. The fact is that he can't help but show profitability at this point, and it will soon be big GAAP profitability as he has reduced stock-based compensation to below 10% revenue.
Which brings me back to the stock price, the one that soared past where it stood when the stock opened up after being halted because of the volatility spurred by takeover talk. For some who doubted Marc all along, the takeover talk was foolhardy. Who would ever buy this loss-making machine?
After this quarter, you have to think, why the heck didn't they buy this company when they had a chance? Why didn't Oracle (ORCL) or Microsoft (MSFT) or SAP (SAP) make a bid?
I think the answer is three-fold:
- Benioff wants to get to $10 billion,
- He wants to work for a company that wins for stakeholders, which includes customers, charities, employees who might be discriminated against as well as shareholders and,
- He wants to slaughter the very companies he is rumored to be courting.
In fact, the only reason why these silly rumors should have surfaced is that he's actually making nice with Microsoft now that Steve Ballmer, who never gave Marc the time of day, is out.
Benioff's fifty. He's not going anywhere until he reaches his goals. By that point, though, I think, after this quarter, his company will be too big to be acquired, because he will have stolen the market cap from his competitors.
Bottom line? They should have bought salesforce.com when they had a chance. It's too late. He's coming for them now. And I think he will win.
Some save their best jibe for last. That's what Marc Benioff did last night in his triumphant salesforce.com conference call, when he closed with "the only innovation SAP has is in rhetoric. They should try writing some software."