On re-evaluating !!!

On re-evaluating !!!

Bert Hochfeld had written three or four times during the year about SalesForce (CRM), always positively. Yesterday he wrote a mea culpa re-evaluation apologizing and trying to figure out where he had gone wrong! This for a stock that was only down 12% on the year. I consider that intellectual honesty, of a kind that is sorely lacking in some other services I follow. (For example, MF strongly pushed Westport in its recommendations and its advertising when it was between $30.00 and $40.00! It’s now at $1.11 (down about 97%). They eventually sold out but never apologized or publically tried to evaluate what went wrong as far as I know. But this isn’t about MF. Most analysts for major companies don’t admit their recommendations have been wrong either.)

Here’s a link to Bert’s article http://seekingalpha.com/article/4033267-salesforce-com-foren…

And here’s the introduction to the article:

I confess that this has not been a fun article to write. I do not like to lose - and yet this has been one of my worst picks over the past year. Salesforce.com (NYSE:CRM) has not been the most satisfying stock to own in 2016. And I have owned it for much of the time…The shares are down nearly 12% as I write this and have significantly underperformed the IGV index, which is up almost 7%. And lest I try to avoid taking blame for my own opinions, the shares have lost about the same percentage since I initially proclaimed my positive outlook for the shares in this forum. I got that one wrong - dead wrong this past year.

Some have expressed their distaste for Bert because he had been convicted of a felony in the past. I must say, as an analyst he seems plenty honest, and more than most other analysts who never go back and say they had been wrong.

I looked back at my experience with Salesforce this year, by reviewing my My Portfolio at the end of the month summaries. The first mention was at the en of June. I had taken a small position after reading one of Bert’s articels. By the end of July it had moved up to my 8th largest position. Then here’s what I wrote at the end of August

Salesforce has moved down from 8th place to 9th at 5.6% of my portfoio … I must say that I am disappointed about this stock (not the company). The stock has gone nowhere since I started to accumulate a position about three months ago. I bought it mostly about $82 and it’s now $79. Not a catastrophe, but not great either. The problem is that its PE is quite high because it’s a SaaS company so it only gets to count its revenue month by month. Its performance has been great. It dominates its category. Its revenue rises each quarter, not only year-over-year but sequentially as well. Its operating cash flow rises, its deferred revenue rises (it currently has $4.0 billion(!) in deferred revenue, and $7.6 billion(!) in “unbilled deferred revenue.” In other words, the success of their business is not being fairly described by the current accounting system.

I exited it in September after crowdsourcing on the board (expressing my concerns and asking others for their opinions. I got helpful opinions from Ant, Frank, Bear, TipTree, Perkeo, Phoolio, Jdc, and CMF Cochrane (Matt), among others). Here’s what I wrote in my end of the moth summary:

I exited Salesforce, CyberArk and Atlassian during the month. With SalesForce I was concerned about a weak June quarter, and then they lost a big customer, HP, to Microsoft, which seemed very odd to me, as moving all your cloud from one company to another sounds like a major step and not one which is undertaken lightly. Salesforce also seems to be desperately chasing after large acquisitions (LinkedIn, Twitter) that they can’t really afford without a lot of dilution or a lot of debt. And they have a huge PE already, even if the accounting system doesn’t fully value them. I asked the board for help in analyzing the situation and ended up selling out.

I hope this has been helpful to you.

Saul

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