As the result of an SEC investigation, Salesforce last week disclosed something strange for a $US4 billion enterprise tech company: it doesn’t really know how much money it generates from any of its individual products, it says.
It said it didn’t have the “financial controls” in place to figure that out.
Can a company that has grown from $US2.2 billion to $US4 billion in two years, largely through acquisitions, not know which of its products is responsible for that growth?
Apparently, yes, it told the SEC:
… we respectfully note that we currently do not have financial systems and controls in place to be able to accurately quantify the percentage of our total revenue derived from subscriptions to the Sales Cloud or any other core service offering in any particular fiscal period.
Salesforce.com doesn’t break out revenues from different products when it reports earnings. However, as the SEC looked at its 2012 and 2013 financial reports, it grew curious as to how it came up with the growth numbers it was reporting.
There was particular interest over what part of its growth came from selling its flagship cloud services and what part came from ExactTarget’s revenue (the company it acquired last summer for $US2.5 billion, its largest ever buy).
And Salesforce also says that part of its growth comes from “improved renewal rates”
“In other words Salesforce said growth came from losing fewer customers,” writes James Ryans, on Seeking Alpha. Ryans is currently earning his doctorate at UC Berkeley in the area of corporate financial disclosures and valuation.
When the SEC asked the company to explain the growth numbers, Salesforce said it couldn’t. It then promised it would come up with a method to better track sales this calendar year and start reporting that stuff.
The SEC said it closed the investigation and Salesforce disclosed it on March 4.
Note that none of this indicates any wrongdoing of any kind on Salesforce’s part. It’s more of a growing pains thing from expanding into new markets and acquiring new companies.
Still, Ryans makes a good point, writing:
No one can deny Salesforce’s success, growing by a reported 33% to more than $US4 billion of revenue in the year ending January 31st 2014. Yet the company lost more than $US200 million and spent more than $US2 billion on acquisitions … an enterprise software company should be embarrassed if it is incapable of basic analysis of its own sales data.
Also note that a few days before Salesforce disclosed all of this, it announced that its CFO Graham Smith was retiring.
Salesforce.com declined further comment.