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Does Salesforce.com Have Cash Flow Issues?

March 05, 2012 | About:

Short sellers of Salesforce.com have been battered in recent months as the stock is up 40% YTD.

Investors are hunting for clues as to whether Salesforce.com is about to pre-announce slowing sales or cash flow issues.

Recently, the company announced plans to cancel the building out of their new corporate headquarters in California.

The company issued a press release stating that the reason for cancelling the development was because the company is growing too fast.

Bruce Francis, chief messaging officer for Salesforce.com, said the decision to instead lease space downtown was based solely on logistics.

"We are growing now faster than we were growing at the time when we originally made the decision to build the campus. We are going to need space faster than we could build it. That's why we decided to suspend development of the campus," he said. "We decided that the best long term solution is to sign long term leases in the downtown area."

First of all, the initial decision to build out this facility was panned and the company has been spending money in a way that is reminiscent of the tech bubble. It must be asked, why would a tech company get into the commercial property development game? Investors never like to see a company stray from it's primary focus.

Secondly, this recent cancellation has led the short sellers to speculate that the company might have cash flow issues.

The decision to scrap the commercial developments plans are not due to hyper-growth. After all, if you need more space you can always build higher. Developers commonly add new floors when demand exceeds supply.

Something does not add up and Salesforce.com investors should be on the lookout for clues as to whether cash flow is starting to become an issue at the company.

Rating: 3.2/5 (13 votes)


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GuruFocus has detected 3 Warning Signs with Salesforce.com Inc $CRM.
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