Salesforce.com: Putting Lipstick on a Pig
seekingalpha.com
seekingalpha.com
“If stock options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world do they go?”
1) The cost of the issued option must include time value of the stock. If a company's stock becomes more volatile, for whatever reason, their GAAP income appears to be reduced.
2) If a company's stock rises, the options vesting appear to be worth more and more. In other words, the mere act of the stock price rising depresses income.
The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $238 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $60 million, and non-cash interest expense related to the convertible senior notes, expected to be approximately $11 million.
In his intro his statement that there is a problem with 'convertible bonds' refers to this $11MM non-cash interest expense on the convertible senior notes. On the convertible notes, the accrued 'non-cash interest expense' (which is not an expense (: ) will eventually convert to stock and dilute stock holders.
The stock-based compensation is now $117MM and doubles to $238MM next year and is a huge hit on their earnings, current and future. Compared to the pitiful $11MM 'non-cash interest expense' which is not an expense :).
He's clearly upset with something and thinks he has an important point to make. But he makes no attempt to explain what he's upset about or make that point in a way that anybody but him can parse.
I'm going to cast my vote for the most poorly written HN submission yet this year.
tl;dr
If Salesforce(ticker: CRM) is paying execs in stock, it should count as an expense and they have a loss this year. CRM is cheating by showing earnings based on non-standard accounting (leaving out stock compensation) when it suits them, while touting earnings based on standard accounting when it doesn't!
GAAP - Generally Accepted Accounting Principles - stock compensation should be accounted as expense.
non-GAAP - our own set of accounting principles, which we stick to every year. Allows us to 'leave out' stock compensation, increasing the earnings per share (EPS) while leaving out the dilution that takes place!
Also note, they give stock based compensation of $117MM this year & expect to give out DOUBLE next year - $238MM! So on a non-GAAP basis next year if they double their earnings, on a GAAP basis they will still be only breakeven!
The thing that pushed my buttons about that article is that he could have included a single sentence at the beginning that brought his readers up to speed on what he was talking about. You've done an excellent job of doing just that.
On the other hand, finding the context and definitions you gave would take maybe 10 minutes of Googling and tracking down other articles about the company in hopes of finding out what they're doing wrong. That's a lot to invest before I even get a chance to read the first sentence of this article.
It's like you're sitting in your office sipping your morning coffee, when a disgruntled employee bursts in and launches off on a tirade starting with the words "And another thing..."
Clearly he's been thinking a lot about this, possibly discussing it with other people, but he hasn't with me, his boss (or his reader in the case of the article). The correct response in these situations is along the lines of "Whoa, hang on a second. Let's take a step back and start at the beginning. Now, what is on your mind?"
Keep that in mind when writing, and you'll write better. Even if you think your target audience is fully up to speed, spend a few words to make sure.
The only problem was that it was submitted to HN, which is not a finance-oriented website.
It's actually a good example of a technical article intended for a technical audience yet written to be understandable by a lay person.
I hope you can see the flaw in your analogy here. The CLANG article didn't include a sentence at the top telling you what a compiler is, what a pointer is, etc. You knew because you were part of the target audeience: people with programming knowledge.
The Seeking Alpha article target audience was: People who are active investors and interested/knowledgeable wrt finance.
Normally I wouldn't waste my time with comments like this but you said it's the worst submission to HN all year! And in reality, it's a very informative article that just happened to be using jargon you're unfamiliar with.
I think you might find it more interesting if you look up the terms with which you are not familiar like GAAP (Generally Accepted Accounting Principles) or EPS (Earnings Per Share), He's pretty much quoting the SEC filings from CRM (Salesforce's ticker symbol) themselves.