Amid Cloud Mania, Questions About Salesforce's Growth

Art: Matt Vascellaro
Art: Matt Vascellaro

Salesforce.com’s many acquisitions and the change-the-business-world gospel preached by chief executive Marc Benioff mask a deterioration in the company's much-touted revenue growth, a worrying development for a bellwether firm whose share price has risen steadily for years.

Doubts about Salesforce’s financial performance have been percolating for some time in the halls of the Securities and Exchange Commission and in the offices of a handful of Wall Street research firms. The SEC said in February that it had “completed our review” of the company’s financial filings. Wall Street analysts are examining how the company’s aggressive accounting practices, which are legal but unorthodox, help to obscure the company’s underlying business performance. The company declined to comment for this story.

While most major companies in the sector are more conservative in their accounting than Salesforce and don’t appear to have similar issues, the explosion of cloud-based software services makes it important to understand how the companies can and should be valued.

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But short sellers who have bet against Salesforce have gotten killed. (Mr. Chanos declined to say whether he has a position in the stock.) The stock has done nothing but rise all these years. Salesforce is up 1,395% since it went public, versus 63% for the S&P; and shares have risen 76% since analysts and investors started raising questions near the end of 2011, versus 57% for the index.


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Evan Spiegel
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“Since they seem to give out so much stock as compensation, Benioff obviously votes for growth over profits."

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