Does Salesforce.com’s “Aggressive Incentives” Mean It Might Miss Q4?

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By Todd Sullivan of Value Plays

For me, it was a foregone conclusion……but this email from the $CRM sales staff seems like a group a bit desperate to get any business any way to make a number:

Here is the email with names/numbers redacted (click to enlarge):

This Tiger grand-cub was flat during Q2 but is ready for the return of volatility

Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More


“Aggressive incentives”. Now, we already know that $CRM is not profitable. Even on a pure operational basis they aren’t. Notice the word usage, “driving for what we hope will be a record breaking year”. Now guidance given by the company for Q4 and FY’12 is in fact record breaking (in terms of sales, in terms of profits, it is dismal). So offering “aggressive incentives” to reach that goal means things are slowing way down for them. My guess can be the Europe business is falling off the table in Q4 as one would expect.

Think about it. The auto industry is seeing strong demand and the value of incentives to customers is falling because it isn’t needed, the business is there. The only time to get really aggressive with incentives (really called “price cutting”) is when you aren’t making your numbers and need to do anything to get some business in the door. The other scenario is that the cloud competition, now including little boutique shops you may have heard of like $ORCL$MSFT and $IBM is also being aggressive with pricing and are taking business. The real problem for $CRM here is that the other three have other businesses that will easily support a “cloud price war” to gain market share, $CRM does not. In this respect, a price war in the space will seriously negatively affect$CRM business results.

Now, will it work? I don’t know and they still have 6 weeks to go before the end of the quarter but I think this email shows some panic is starting to set in with the sales staff….Whether they make sales goals or not, it seems as though margins are going to take hit which means larger losses..

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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