Salesforce (CRM) reported strong revenue growth and Wall Street applauded it's market share increases. However, if one digs beneath the surface, the numbers are getting worse at CRM.

Firstly, the good news. CRM added 6,300 net new customers this quarter. The company now boasts over 104,000 users. The user growth translated to 40% revenue growth this quarter.

The company also revised it's revenue forecast higher for FY2012. They now expect$2.22 billion – $2.23 billion in revenues which means that revenue growth rates should continue to shine.

Now for the bad news that has led some Saleforce.com bears to proclaim that the company is similar to the now defunct Pets.com.

First of all there was a a sequential 41% plunge in operating cash flow. Another serious issue is the fact that there was a 26% sequential jump in accounts receivables. The sequential revenue growth is only 8% meaning that receivables are growing at over 300% of actual revenues. In other words, what is the quality of the revenue growth at CRM? Are they simply signing up soon to be defunct solar companies and fad social media companies?

Of course, the big gripe with CRM is the stock-based compensation which is up 105% year-over-year, three times annual revenue growth. Perhaps more concerning is that stock based compensation has rocketed 79% from last quarter.

To make matters worse, expenses rose sharply and R&D and sales & marketing expenses, which continue to increase led to a net loss of $4.2 million in the quarter.

The company is also antagonizing software giants such as SAP (SAP), Oracle (ORCL), Microsoft (MSFT) and IBM (IBM). At a conference last week, CEO Benioff compared these companies to old Arab dictatorships.

"[In the Arab revolution] you didn't see signs saying 'Thank you Microsoft.' You didn't see signs saying 'thank you IBM.' ... We've seen Mubarak fall, Qaddafi fall. Not so long from now we'll hear about a corporate spring, an enterprise spring. When will the first corporate CEO fall for the same reason -- because customers are rising up, they're not listening to their employees, they're not paying attention."

I am doubtful that Mr. Benioff and his company will be able to escape the slowdown in enterprise spending that is starting to drag down the tech giants despite his bombastic remarks.

What Worked in the Stock Market for Long-Term Investors?

Extensive research has found that the companies with predictable revenues and earnings outperform the market average; they also suffer lower probability of loss. As a matter of fact, this kind of companies are exactly what Warren Buffett wants to buy and hold forever. Please read the research about what worked in the stock market:

Part I: What worked in the market from 1998-2008? Part I: Predictability Rank
Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety

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