Prior year
Sales ($B) op. Profit
Gross
margin
market value
x Sales
Sales
Growth Sales/Person
Sales,
mktg, GA%
Facebook $3.7 47% 77% 28x 88% $1.2M 20%
Microsoft $70 39% 78% 3x 12% $778K 26%
google $29 35% 65% 7x 24% $1.2M 16%
oracle $36 34% 76% 4x 33% $333K 21%
Apple $108 31% 41% 4x 66% $1.7M 7%
Infosys $6 29% 42% 5x 26% $46K 12%
SAP $16.5 21% 69% 4x 17% $308K 26%
IbM $100 19% 46% 2x 4% $234 K 19%
Salesforce $1.7 6% 80% 9x 27% $321K 63%
Linkedin $0.52 4% 84% 13x 215% $260K 46%
Source: Compiled from company 10-K, 20-F, and S- 1 reports submitted to the U. S. Securities and exchange Commission,
available on the company Web sites under Investor Relations.
R&D%
10%
13%
13%
13%
2%
2%
14%
6%
11%
25%
Product
Sales%
15%
90%
4%
38%
94%
5%
26%
41%
94%
20%
table 2. Examining the Salesforce.com profit rate.
Salesforce.com
Revenues
Subscription and Support
Professional Services, etc.
2011 ($million)
$1,657
1,551
106
Percentage
100%
94
6
Cost of Revenues
Subscription and Support
Professional Services, etc.
324
208
116
20
13
7
Gross profit (and gross margin)
Operating expenses
Research and development
Marketing and sales
general and administrative
Total operating costs
Operating profit
1,333
w
188
792
256
1,236
97
80
11
48
15
74
6
Source: Calculated from Salesforce.com, Inc., “Form 10-K,” Washington, D.C.: United States Securities and exchange
Commission Fiscal Year ended January 31, 2011, p. 31.
gard is Apple (41%), which also trailed
Microsoft, Google, and Oracle (in addition to Facebook) in operating profit rate. Apple’s innovative iPhone,
iPad, iPod, and iMac products are at
the core of its strategy, and it can still
charge a premium. But the low gross
margin reflects that Apple’s direct
costs of making products are much
higher than at software or Internet
service companies. The more revenue Apple generates from automated digital services, software sales, or
transaction fees through i Tunes, App
Store, iCloud, iBooks, and iAds, then
the more its gross margins are likely
to rise.
What about market value times prior year sales LinkedIn’s IPO price in
May 2011 was $45 per share, with an
initial market value of $4.25 billion.
7
This was 17 times 2010 revenues of
$243 million. A year later, LinkedIn
still leads with a valuation of 13 times
2011 revenues ($522 million). Sales-
force.com is next (9x), while at the
bottom we see IBM (2x) and Microsoft
(3x). Even Apple is only 4x—
remarkably low for a company that grew sales
66%. Why is that?
LinkedIn’s valuation makes more
sense when we look at the next col-
umn—sales growth rate (versus the
prior year). Here again, LinkedIn
leads at 215%, though 2010 revenues
were small. Facebook again impresses
at 88%. By contrast, IBM lags at 4%.
Low growth and low operating profits
(19%) help explain why IBM’s market
value is so low.