Sunday, August 24, 2014

Salesforce: Robbing Peter to Pay Paul

Another three months has passed and another set of results are available for review. In the previous analysis, I predicted how Salesforce would fare. I did not do that this time but will have a go for next quarter. Also, I will use my newly discovered method for predicting the Salesforce subscription numbers in this review.

The Numbers

Salesforce have revamped their web site, including the financials, removing the historical financials PDF which was increasingly out of date. Five years of financial data are available, eight years of annual reports and the SEC filings.

Here are the numbers for most recent five quarters.

  2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2
Revenue 957,094 1,076,034 1,145,242 1,226,772 1,318,551
Subscription Revenue 902,844 1,004,476 1,075,001 1,147,306 1,232,587
Revenue Cost 217,717 268,187 273,530 292,305 307,831
Operating Cost 779,234 905,778 975,458 989,808 1,044,154
Salesforce Income 76,603 -124,434 -103,746 -96,911 -61,088
Revenue Growth # yoy 225,445 287,636 310,561 334,139 361,457
Revenue Growth % yoy 31% 36% 37% 37% 38%
Revenue Growth % mom 7% 12% 6% 7% 7%
Total Cost % yoy 34% 39% 46% 37% 36%
Staff 12,571 12,770 13,312 14,239 15,145
Staff Growth (yoy) 43% 37% 36% 38% 20%
Margin 8.00% -11.56% -9.06% -7.90% -4.63%
Growth Difference -3% -3% -9% 1% 2%
Cash 579,881 651,750 781,635 827,891 774,725
Accounts Receivable 599,543 604,045 1,360,837 684,155 834,323
Cash/AR 97% 108% 57% 121% 93%

Staff growth is significantly down, to about half of the rate previously, which is very surprising. one to watch.

As for profits, they made a 61 million dollar loss which, apart from that one quarter where they got a tax break, means Salesforce has not made a profit for three years.

Subscribers

With a strong correlation of transactions to subscribers, I derived the formula:

Transactions = 150.27 * Subscribers – 40,000,000. So, for example, when there was 53 million transactions, back in September 2006, the predicted subscriber count is around 619,000. We know that the subscriber count at that time was around 556,000, which means we are about 10% off.

The trust page tells us the highest recent level of transaction was July 22, 2014 which had 2,037,819,946 transactions. This gives a subscriber count of 13.8 million. This is a LOT of subscribers but, if it is true, it means the average revenue per user per month is $32, which is not even a Sales Cloud Professional subscription. It also means that, on average, Salesforce loses just under $1.50 per subscriber per month.

Revenue and Cost Growth

Revenue growth remains solid and appears to be accelerating slightly. Salesforce have also got their revenue growth above their cost growth, which means they are heading back to profitability. In terms of the difference between the revenue growth and cost growth being 2% or more, this is the first time it has happened in about five years, so it will be interesting to see how this progresses next quarter. If they are not careful, it might become a habit.

In the above graph I have also added four-period moving averages. This is an average used to look for trends in movements. As can be seen, the moving average for Cost Growth has remained above the average for Revenue Growth for the last four years. However, now they are approaching and, if they cross in the future, it will be a good sign for Salesforce.

Cash and Accounts Receivable

Despite optimism about the decrease in Accounts Receivable and increase in Cash in the previous quarter, this trend has reversed this quarter, which is a pity. I also mentioned in the last review that historically, Cash ran above Accounts Receivable and now they seemed to be coming to a similar level. By adding in the four period moving averages, we see this to be the case. We also see that Accounts Receivable, for the first time has nudged above Cash in terms of the actual amounts and as an average. For me, this is not a good sign. As I mentioned last time, cash in the bank is a better asset than money owed to you by customers.

Earnings Call Buzzword Bingo

The rule is the words on the list have had ten or more mentions in the past five periods with the text used being the call transcript after the introduction and up to, but not including, questions.

  2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2
Number of words 3500 3700 3700 2400 4731
Customers/Customer 40 39 25 22 38
Revenue 37 37 29 19 27
Cloud 23 31 14 15 22
ExactTarget 24 21 15 7 8
Platform(s) 19 21 12 10 13
Service 14 19 13 13 15
Sales 14 16 4 6 6
Growth 12 14 12 9 18
Marketing 12 12 11 5 10
Cash 10 10 16 10 11
Mobile 11 7 5 2 8
Operating 9 7 10 11 11
Enterprise(s) 6 7 3 8 10
Social 9 6 3 2 4
EPS 10 5 6 6 6
Salesforce1 0 0 11 6 7
Dreamforce         11

Quite the word-fest this call, with CEO Marc Benioff, President Keith Block, Executive VP Graham Smith, and CFO Mark Hawkins all speaking.

Dreamforce is a new term this quarter (it is coming up in October, so this makes sense). Social has dropped off the radar, presumably because Salesforce is no longer the Social Enterprise. Similarly, EPS (Earnings Per Share) is falling out of favour as a measure for the earnings calls. The three most popular words, as usual are “Customer(s)”, “Revenue”, and “Cloud”.

One phrases of note: “running their entire business right from their phone” (two mentions). This is Marc’s vision of the future. Run it from your wristwatch, I say.

One word conspicuous in its absence was ‘profit’. It was not mentioned in the transcript once, nor in the question and answer session.

Google Trends

As usual, I pump “Dynamics CRM” and “Salesforce.com” into the Google Trends analyser and see what comes out.

Red is “salesforce.com” and blue is “Dynamics CRM”. Dynamics CRM is flattening out while Salesforce.com continues to drop.

Insider and Institutional Sales

According to Yahoo, this is how we stand, in terms of insider and institutional sales.

  2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2
Insider Sales 0.50% 0.50% 0.50% 0.50% 0.40%
Institutional Sales 3% 2.75% 2.72% 2.71% 2.67%

It seems, in both cases, while shares are being offloaded, the rate it is happening is slowing down. Perhaps attitudes are changing towards the future of the stock.

Looking to the Future

Salesforce predict the next quarter will have revenues between $1.365b and $1.370b and a loss of between $80-86m.

I think revenues will be closer to $1.4b and the loss will be around $40m so we will see who gets closer.

Conclusions

If we listen to the earnings call, if would be easy to think Salesforce is a company going from strength to strength and there is no denying, for a company their size, they do have enviable revenue growth. However, no matter how it is dressed up, financially, it is a bit of a mixed bag. Obviously three years of unprofitable business is bad and a degradation of the quality in the assets is bad but then we have the improved sales/cost growth and slowing of the insider and institutional sales.

The lack of profits is often explained away by saying that Salesforce is making a loss so they can aggressively target market share. Similarly, I imagine the improved sales/cost growth could be explained by the degradation of assets i.e. relaxing payment terms in order to win more business. How sustainable these practices are I do not know but living in denial by not even talking about profits or the lack thereof is a recipe for disaster.

Sunday, August 17, 2014

Playing With CRM Data In Excel

In terms of Microsoft software, my second passion after CRM is Excel. I have used Excel to solve Maxwell’s equations, valuing the entire New York and Australian stock market for bargains and I use it to manage the household budget. Here are some graphs from the spreadsheet solving Maxwell’s equations.

Excel has come a long way since I put this spreadsheet together and the new BI tools make Excel ideal for analysing CRM data.

Giving Credit Where Credit Is Due

Firstly, I owe a big thanks to Jukka Niiranen for two posts in particular. They are here and here and are the essentials for connecting Excel to CRM. Thanks to Jukka, I now get Excel to talk to any Dynamics CRM implementation, regardless of deployment mode. What is annoying it I did not read these sooner, given he wrote them over six months ago. I will summarise the main takeaways of Jukka’s blogs below in regards to connecting Excel and Dynamics CRM and update them.

Closing the Loop

You may remember, a while ago I showed a way of getting Power View into CRM.  I tried replicating this for this blog post and I struggled. It seems the newer versions of SharePoint online do not like displaying files in an iframe which trips up my old trick. The dream of creating an Excel spreadsheet of CRM data, which can be refreshed, and have it displayed in a dashboard, is not quite possible for CRM Online but maybe soon.

***STOP PRESS*** Speaking to Mark Rettig of Microsoft, he reminded me of the trick to get the spreadsheet to work. Change the end of the URL to say “…=embedview”.

Connecting CRM to Excel

The obvious way to connect CRM data to Excel is via the CRM export. On practically any list of data in CRM you can export the data to Excel.

There are two main options for exporting data: static and dynamic. Static copies the data and dumps it into Excel. It works for any deployment method but to refresh the data, you have to export again, which is annoying. This is where the dynamic export comes in.

A dynamic export does not copy the data but rather creates a FETCH query in the Excel spreadsheet which retrieves the data when the Excel file is opened. The main drawback with this method is it needs the Outlook client to broker the connection. So what do you do if you do not have the Outlook client?

OData Connections

The next best option is the Organization Data Service. This provides an OData (REST) connection to the data in CRM and is one way developers chat to CRM. For those of us who cannot code, we access this via the web address at Settings-Customizations-Developer Resources.

You can stick this into a browser and it will return a list of CRM tables. You can even add a table to the end of the URL, say AccountSet, and you will get an RSS feed of the Accounts in CRM.

Fortunately, Excel understands OData, so all we have to do give Excel this address, a login and password and we have a dynamic connection.

Out of the Box Excel OData Connections

For Excel 2013, in the Data tab of the Ribbon, in the drop-down for ‘From Other Sources’ is an OData option.

Selecting the OData option asks for the URL, login and password, as expected.

This works for on-premise IFD implementations but consistently fails for CRM Online.

Apparently, Excel’s standard OData connection does not support passing through the Live ID or Office 365 credentials. Until Jukka’s articles, this had me stumped.

Excel’s Power Query

There are a whole bunch of new and exciting add-ons for Excel. One of these is Power Query, which can be downloaded here.

Power Query provides a whole range of new data query options like Online Search (which lets you search online data sources), MyData database source and, of course, OData in the ‘From Other Sources’ option.

Unlike the out-of-the-box OData connection, this one plays nicely with CRM Online.

What To Do With the Data?

Out of the Box, Excel 2013 comes with Power View, allowing you to display and manipulate your data in new ways (image care of Jukka).

Another add-on from Microsoft, currently in ‘Preview’ is Power Map, downloadable here (previously called Geo Flow). With Power Map, you can take data with address fields and Excel will use Bing Maps to plot your data. In this image, I take a few thousand account records from CRM, using the OData connection, plot their location and color-code them based on their industry.

The tool also allows you to create video fly-overs of your data for presentations and add soundtracks and commentary. There is also a layering option so you can overlay different kinds of data and compare them.

Conclusions

Microsoft is investing a lot of money into the Excel BI tools so, if you have a CRM system, and want to gain insights from the collected data, Excel is a good place to start. In the past it was difficult to get Excel to work with CRM Online but, this seems to be a thing of the past and, with tools like Power Map, it is possible to present and explore data in new ways. I strongly recommend upgrading to Excel 2013 and checking out what is available.

Sunday, August 10, 2014

Getting Demos for Social Listening and Dynamics Marketing

It is exciting times in Dynamics CRM with Microsoft’s acquisitions getting released in the wild. The two big ticket items are Social Listening (social monitoring tool) and Dynamics Marketing (a comprehensive marketing management tool).

Both of these are available from Office 365, but what if you want to try before you buy or you are a partner seeking to demonstrate the Social and Marketing goodness to your customers and prospects? It is not easy to work out the options available so here they are.

Options For Microsoft Partners

As a gold partner, you get access to both products as part of your internal usage rights, as well as Dynamics CRM. Partners receive special codes to use in an Office 365 subscription. If you do not have your codes, get in touch with your PAM (Partner Account Manager). This, of course, is not ideal for demonstrations because it is one instance for all prospects but it is better than nothing.

There are also the TAP (pre-release) programs which give early access to the new releases of the software although these are generally held under a non-disclosure agreement so you cannot use these for demonstration. Again, if you are not aware of the TAP programs, for you and your clients, ask your PAM.

There are also training materials on PartnerSource for Dynamics Marketing to gain more information.

 

Options For The Rest Of Us

For non-partners, there are plenty of ways to gain information. For Dynamics Marketing, a good start is the Microsoft Dynamics Marketing page. From here you can see a video overview and do a guided walkthough. However, as of writing, this is as good as it gets. I know of no time-limited or function-limited demonstration for Dynamics Marketing. Perhaps this will change with the fall release of CRM.

For Social Listening, there are plenty of training materials and videos. There is also a Microsoft Social Listening page. From here, you can also do a guided walkthrough but, unlike the Dynamics Marketing page, once you start the walkthrough, you can select a 30 minute trial.

The configuration is locked down but you do get to play with the social analytic tool. If your time runs out, rinse and repeat for another 30 minutes.

Conclusions

The information and demos for Social Listening and Dynamics Marketing is a little scattered and, while there is no available demo for Dynamics Marketing, there is information available to give an idea of what the product looks like and what it can do (not to mention many videos on YouTube for Dynamics Marketing and Social Listening).

Social Listening does have a trial and also lots of information in the form of training materials and videos and, if this is an area of interest, is well worth checking out.

I expect that, eventually, like Dynamics CRM, both of these products will have time limited trials available in Office 365 but, until then, hopefully, these materials will see you through.

 
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