jschembs

How about the demand side of the equation? The slow deleveraging process certainly has restricted demand for new borrowing among many individuals and corporations.

I'm thinking operating expenses as opposed to capex. Companies that consistently generating operating losses (as opposed to negative free cash flow) with revenues greater than $500 MM.

Here's another explanation (as with any Zero Hedge article, don't read the comments, they will make you dumber as a result): http://www.zerohedge.com/news/2013-10-30/guest-post-us-1-oil-so-why-isn%E2%80%99t-gasoline-080-gallon

That's certainly possible - and I didn't mean to shoot down your responses, I was just reporting the numbers - but again even at $58 MM of revenue they were able to generate profits. The theory I'm trying to prove or disprove is whether this new mantra of "growth at the expense of profits" for large enterprises has sufficient (or any) historical precedent.

PayPal's last publicly-disclosed financials indicate an operating loss of $46 MM on $174 MM in revenue for LTM 6/30/02, which is a narrower loss from $111 MM on $105 MM in revenue for FYE 12/31/01. PayPal seems to fit the hyper-growth venture capital exclusion from my initial question. So 2 out of those 3 aren't valid; I haven't spent any time looking for INTC's ancient financials when they were in a similar point in their history.

Quick glance at SBUX's financials indicates they've been generating operating profits way back to 1991, when they were generating $3 MM of EBIT on $58 MM of revenue.

I'm curious, and not sure how to research this through CapIQ, but is anyone aware of any company that has historically spent ("invested" in the sell-side vernacular) their way to profitability? Excluding of course start-ups, I'm thinking about any business with revenues say in excess of $500 MM.

Agreed, via Excel...once you were able to knock off the easy ones, I think determining who lived in what number house was the most helpful...

I remember when he changed his name to Bison Dele, but didn't recall the details of him leaving the NBA to wander the world or his ultimate disappearance. The connection with Patrick Byrne is fascinating as well.

Gents - I won't be able to attend this week (previously replied yes on the online invitation), but would be interested in any notes taken by attendees. Hopefully, this thread will continue with an update on the event. I'll certainly be interested in future events.

Amen to that. CRM finally turning, will re-investigate shorts of WDAY, LL, and FOSL.

Some analysts will argue that acquisitions should not be treated like capex because the acquisitions generate immediate economic returns for the company (as opposed to traditional capex - purchasing and installing equipment, for example - which is expected to generate the preponderance of its returns in future periods). For the typical tech acquisition, which tends to reduce economic returns in the short run (and are dubious to actually create value in the future, particularly at the prices paid), arguing that these should be excluded from calculations of free cash flow is incorrect in my opinion. For example, look at CRM's major acquisitions in recent years - Heroku, paying roughly $215 MM for ~$1 MM of revenue; Radian6, paying $337 MM for a negligible amount of revenue; Buddy Media, paying $745 MM for $32 MM in revenue; and, ExactTarget, paying $2.4 BN for $340 MM in revenue. They've made plenty of other acquisitions on even earlier stage companies, but the acquisitions listed amount to $3.7 BN in cash/stock outlays for roughly $375 MM in revenue - and of course non of that revenue generated any profit. However, because the true cost of these acquisitions are almost entirely capitalized as goodwill or intangible assets, the near-term income statements tend to grossly overstate profitability. And that leads me to reason #257 for shorting CRM - they can't generate GAAP operating profits even with the benefit of merger accounting!

Wow, Taleb's promotion must have wiped out nearly all of the excess supply. I bought it used (like new) for $11 a couple weeks ago on Amazon. It's pretty dense thus far, focused on legal theory and the art of determining guilt prior to probabilistic-based methods.

I'm in Seattle as well and would love to participate. Investing isn't my day job, so it's easier to meet up after work for pints or on a weekend afternoon.

Grew up in Redmond, WA (and somehow my dad, who was a stockbroker, never invested in MSFT until it became considered a value stock), college in Philly, back in Seattle proper since college. I certainly would be happy to grab beers with anyone stopping into town to talk microcaps and overvalued large caps.

Great point xtreeq. As a charterholder since 2006, I shudder when I see CFA behind any Wall St. analyst publishing research conclusions such as this.

In my opinion, the rationales given to support price targets among Wall St. equity reports border on comical. Below are two valuation summaries from Goldman's Heather Bellini (a fellow CFA charterholder, regretfully) regarding Salesforce.com (CRM). The first is dated Aug 4, after their ExactTarget (ET) acquisition, while the second is dated Jun 4 (prior to the acquisition). CRM's acquisition of ET increased CRM's future GAAP losses - nevermind the cost to acquire those GAAP losses - so Heather simply bumped up her assumed multiples to back into her existing $60 target. She claims the higher multiples are warranted given higher assumed revenue growth post acquisition. ET has not generated any free cash flow over the last five years, so I'm not sure a higher FCF terminal multiple is necessarily warranted. Further, and this brings up a much more interesting point, how can she justify the same 9% discount rate after acquiring a much riskier business AND after a 100 bps increase in the 10-yr treasury, which should absolutely affect the rate at which highly unpredictable future cash flows are discounted? I realize the 10-yr is up only ~50 bps from early June, but her other CRM reports earlier in the year also use a 9% discount rate. Aug 4 Valuation Rationale Our 12 month price target of $60 is unchanged and is based on an equal weighting of our DCF, EV/bookings and P/CFO analysis. Based on a CY14E P/CFO multiple of 38X (from 35X prior) we derive a valuation of $57 per share. For our EV/bookings analysis, we arrive at a value of $67 based on a 7X multiple of our CY14 estimate. Lastly, our DCF assumes a 9% discount rate and a 26X terminal FCF multiple (from 21X prior), suggesting a valuation of $56 per share. This implies a perpetuity FCF growth rate of 5%. We have slightly adjusted our valuation multiples given our view on better top-line and booking growth post the acquisition of ET. June 4 Valuation Rationale Our 12 month price target of $60 is based on an equal weighting of our DCF, EV/bookings and P/CFO analysis. Based on a CY14E P/CFO multiple of 35X we derive a valuation of $59 per share. For our EV/bookings analysis, we arrive at a value of $65 based on a 7X multiple of our CY14 estimate. Lastly, our DCF assumes a 9% discount rate and a 21X terminal FCF multiple, suggesting a valuation of $57 per share. This implies a perpetuity FCF growth rate of 4%. Risks to our call include an unforeseen macroeconomic slowdown impacting the IT spending environment broadly, higher expense growth driving pronounced margin compression, and weak sales execution as new reps take longer than anticipated to become productive.

I'm not really a conspiracy theorist, but some of the stuff posted to Byrne's Deep Capture site makes for some interesting bedtime reading.

Upon a cursory review, it looks like most of those are financial services businesses, so looking at balance sheet cash doesn't really tell you much about whether the company is undervalued on a net-net basis. Perhaps the lesson is that there aren't many good opportunities on the long side out there right now!

Largest to smallest positions: Short CRM Long SODI Long AIRT Short WDAY Long INFU Long JCTCF Long Jan 40 TSLA puts

Four books I've read that at the time were somewhat difficult to comprehend because of their dissonance with textbook finance and the consensus reading material out there, but intuitively made sense and in retrospect are invaluable: Mandelbrot's Misbehavior of Markets Soros's Alchemy of Finance Marty Whitman's Value Investing Klarman's Margin of Safety