Search
This form does not yet contain any fields.
    « Is Tesla about to have a Theranos moment? | Main | The Greatest Trade Ever and the Money Bubble »
    Wednesday
    May162018

    Salesforce stinks, GW is high. Play NICE.

    My mentor liked to say, “Nothing happens until somebody sells something,” and that is increasingly the business problem. You can make anything, but can you sell it?

    Now come the cohorts of Internet tools to make your dreams come true. Tired of installing software? Salesforce.com has made the cloud even harder. I’m calling “the emperor’s clothes” on Salesforce. It’s bloatware made sexy – an overpriced, under-powered cloud service that satisfies only the most free-spending, careless mega-corporations that once used even worse sales tracking systems.

    Salesforce the company is run by salesmen who answer every question with a conference call to “engineers” who have been instructed that the answer to the simplest requests – like, “How about a report on the number of sales calls?” – is to say that no one ever asked for that before, but, for only a ridiculous fee, they can “engineer” something or sell you an app.

    In short, Salesforce has become so big that it can only grow by consuming its own customers. e.e. cummings could have written, “salesforce is an it that stinks Excuse”.

    Meanwhile, the rest of the market isn’t sitting still. Companies like SugarCRM, Freshworks, and every major software company have figured out how to follow up leads and generate reports. And odoo.com operates a free, open-source model that claims 3 million users.

    Salesforce (CRM) won’t die soon, but it’s not likely to make you rich. With a market cap of $94 billion, doubling would make CRM one of the most valuable companies on the planet. Cisco, Pfizer and Verizon are each worth about $200 billion. CRM would need to double to get there; you can probably do better elsewhere.

    Show me the money! Here’s what Salesforce insiders think of their stock: 

    In the last four quarters, Salesforce has earned $127.5 million. With an enterprise value of $93 billion, that’s a 0.14% return. Savings account anyone? Why pay for this risk?

    Medical marijuana and GWPH

    You know you’re near a market top when the man-in-the-street confidently bets on trendy trends. I enjoy hearing their tips, which are usually about price momentum and the certainty that an unknown company will benefit from the trend of which only especially shrewd people are aware. For instance, the legalization of marijuana. 

    I heard one such tip today for GW Pharmaceuticals, a U.K.-based company developing marijuana pills for epilepsy. In the most recent quarter, GWPH had sales of $3.3 million, a loss of $88 million, and a market cap of $4.2 billion. Sounds terrible.

    On the other hand… 3 million people with epilepsy in the U.S. consume about $15 billion of medical care. Because GWPH has so much cash, the real cost to buy the company is $2.6 billion, and the company is not in immediate danger of liquidation. People hate to be in pain, marijuana is popularly thought to relieve pain, and “On the 19th the Peripheral & Central Nervous System Drugs Advisory Committee of the FDA duly gave its unanimous recommendation on the basis of the briefing document. The vote was 19-0.” Final FDA approval is expected on June 27.

    Let’s do a back-of-the-envelope calculation for this opportunity. I am absolutely unqualified, but here goes. Let’s say GWPH can extract an average of $300 per person annually with the condition – and that some other people without the condition will also find access to the pills, which seems to happen with marijuana products. Prices could be much higher and adoption much lower. That puts sales at about $900 million. We know that they are burning $88 million a quarter now, so let’s bump that to $100 million a quarter, and bring $500 million to the bottom line. After 30% taxes, they’ve got $350 million at 30 times earnings (the multiple could be much higher) giving GWPH a value of $10.5 billion. If the general mood remains speculative, GWPH’s value would climb higher and faster before sales even took off.

    Having said that, why would you want to risk principle on GWPH? Much could go wrong. Evangelicals could lobby their president, and they could conflate GW’s drug, Epidiolex, with opioids to stop it. If anything goes wrong, GWPH reverts to a company with $11 million in annual sales. Do you feel lucky? Do you want to bet on marijuana? GWPH is going to swing wildly up or wildly down. You could buy the Jan ’19 $170 calls for about $11 and prepare to take a small loss or celebrate an outsized gain.

    AI and the Contact Center: Buy NICE

    My main theme for the next decade is AI or machine intelligence, which is happening in an interesting corner of business. The dusty call center has become the data center for customer interaction. Voice recognition is now so precise that, instead of authenticating you with the last four numbers of your social security and your mother’s maiden name, computers can listen for your voice print.

    As you speak, computers in contact centers listen in and suggest responses to the agents who can also reference every transcribed voice interaction, text, email, web form, and Facebook post or Tweet that you have ever sent. Increasingly, call centers know who you are, what you like, and how you feel about the company. The industry no longer calls them call centers – they prefer “contact centers” because there are so many ways to contact them. Contact centers are becoming better than face-to-face retailers at managing customer experiences. They can even find agents who match your personality traits for a more pleasant experience.

    You may have noticed that long-distance business interactions are now more pleasant than local ones. I tried to buy a phone case at Best Buy last week. All the cash registers were closed, so I asked the greeter, “You DO sell things at Best Buy, don’t you?” He pointed straight up, and said, “The sign says go to Customer Service.” I stood in line for a few minutes while two customers emptied out their boxes to solve problems. Finally, I took the case off my phone and went home to order online.  At a contact center, they call that WFM or Work Force Management. The software can plan for periods of high traffic and can even send overflow calls to highly rated agents at home. As remote interactions improve and local destinations deteriorate (WHY did I bother to come here?), contact centers will become the focus of customer interactions.

    Artificial Intelligence is increasingly taking over contact center functions. The industry refers to robotic software or process automation, but, like Uber with self-driving cars, contact center executives look forward to a day when they can own cloud software that hums along with very few human costs. Every financial company, manufacturer, government, service company – virtually every organization – will require an automated contact center to understand and fulfill the needs of its customers. Customers, too, are taking on artificial agents to do their bidding, so your Amazon Echo, Apple Siri, Google Assistant, and Microsoft Cortana will work with contact centers to solve problems, order products, and procure services. Contact centers are going to be big business and a fundamental business process.

    Two companies dominate contact center software: NICE Systems (NICE) and Verint (VRNT). Both companies are building software and acquiring competitors in a race to become the leader, but NICE appears to winning. NICE, an Israeli company, has world-wide sales of $1.3 billion and a market cap of $6.2 billion; VRNT has sales of $1.1 billion and a market cap of $2.7 billion.

    NICE has two software solutions: Enterprise that it sells directly to larger organizations, and InContact, a company that it acquired last year and that it sells through dealer partners. The company has a vision for the customer experience that is unmatched by larger companies that would like to be in the space.

    NICE earned $118 million in the last four quarters, and even pays a half percent dividend. If you like Splunk – the $16 billion market cap, money-losing, Big Data company – or Salesforce.com –  the vampire squid of sales software – you’ll love NICE, a company that made almost as much money as Salesforce, has more growth potential, and can still be bought for just $6 billion.

    Should I buy at an all-time high? 

    Is now a good time to buy anything? Everything mentioned above is at an all-time high.

    Now is the weirdest time I can remember: politically motivated hyper spending, deficits that may not be financeable, pension plans are unfunded, dictators claim lifetime employment, trade wars, tribalism, uncivility, but also low unemployment, plentiful money supply and a prevailing belief in the coming tech nirvana.

    To be clear: I would not buy Salesforce at half the price. GWPH is pure speculation that, if you really like marijuana medicine, is best played as an option. I looked at NICE a year ago and waited for the pull-back; it’s up 38% since then. No one can read the future, but NICE has the potential to be the real deal: a growth company that captures a primary business process.

    I continue my program of short-term S&P 500 Puts so that I can sleep at night.

    PrintView Printer Friendly Version

    Reader Comments

    There are no comments for this journal entry. To create a new comment, use the form below.

    PostPost a New Comment

    Enter your information below to add a new comment.

    My response is on my own website »
    Author Email (optional):
    Author URL (optional):
    Post:
     
    Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>