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.