salesforce.com Shares Are Sizzling: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cloud-computing poster child salesforce.com (NYSE: CRM  ) rose more than 10% early today and remain up 3% as of this writing thanks to better-than-expected fourth-quarter results and signs of accelerating adoption of its various platform services.

So what: Revenue grew 29% to $457 million. Non-GAAP profit inched up just a penny, to $0.31 a share. Analysts were expecting $453.24 million and $0.26, respectively.

Now what: As the guy who pitched salesforce.com to our Motley Fool Rule Breakers members, I'm glad to see salesforce.com enjoying revenue and cash flow growth. I also like that deferred revenue grew 33% to $935 million, suggesting customers are making bigger subscription commitments to the underlying platform and add-ons such as Chatter. This is serious growth, and well above what peer NetSuite (NYSE: N  ) is delivering right now.

And yet I'm troubled by salesforce.com's options largesse. The company excluded $0.30 a share pre-tax worth of stock-based compensation costs into its non-GAAP profit calculation. To understand how massive that is, add $0.13 in taxes to salesforce.com's $0.31 per share profit. That's $0.44 in non-GAAP pre-tax profit, right? At $0.30 a share, more than 68% of salesforce.com's pre-tax, non-GAAP profit was a magic trick, the result of pretending that doling out options to management and staff costs shareholders nothing. That's tough to swallow.

Interested in more info on salesforce.com? Add it to your watchlist.

salesforce.com is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is at least 10% better than other disclosure policies.


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