In technology today, it’s important to keep the revenues coming in. It’s imperative to provide growth and shareholder value. But sometimes, it seems like there are always a few companies who can keep spending with abandon. This all while their bottom lines and other financials look horrendous.
Today, we’re going to go through a few examples of this to understand why companies might do this from a strategic standpoint.
Some tech companies can make everything look really good
For all the criticisms of Facebook Inc (NASDAQ:FB), at least it is making money. For a social network with over a billion users, it seems to have a reasonable headcount of about 4,900 employees. And with $219 million in net income, that amounts to around $44,693 in revenue per employee in the most recently reported quarter.
Source: Facebook Earnings Report
Thirty percent of Facebook Inc (NASDAQ:FB)’s revenue is now coming from mobile devices, which is good. According to the New York Times, prior to going public roughly a year ago, the company did not do any sort of mobile advertising at all. That means in one year, Facebook was able to go from $0 to roughly $486 million in revenue from one strategy. This shows that Facebook can operate as a nimble business, capable of monetizing the opportunities that are placed in front of it.
Some tech companies aren’t so nimble
Another technology company that has been public for about a year is Workday Inc (NYSE:WDAY). Unlike Facebook Inc (NASDAQ:FB), Workday is having a problem making money. In the most recent quarter, Workday lost $33 million dollars. With around 1,750 employees, that’s an $18,857 loss per person!
Why is there no backlash on Workday Inc (NYSE:WDAY) like there is for Facebook Inc (NASDAQ:FB)? It’s simple: The company has potential to upend the cloud HR software market. The promise of profits from enterprise customers is keeping it going. According to a survey of Oracle Corporation (NASDAQ:ORCL) partners, it is believed that Workday will someday be able to close the gap and be able to compete in the pricey tier of enterprise HR software.
It’s amazing why people would buy the stock at all. Do they think it is somehow undervalued? How can a company like Workday Inc (NYSE:WDAY)survive doing business like this? Well, it’s not the only one behaving like this in the cloud market….
The force is with who?
salesforce.com, inc. (NYSE:CRM) spends over 65% of its revenue on sales, marketing and administration and only 12% on R&D. What kind of return is that bringing to its investors? Not a whole lot. The company has approximately 9,800 employees, which means last quarter its profit was a minus $27,551 per Salesforce worker.
Source: Google Finance
What’s astounding is how the company can continue to book great revenue numbers yet continue operating with losses. The company’s real problem comes from the number of acquisitions it is making, which is resulting in diminishing returns as integration troubles mount with salesforce.com, inc. (NYSE:CRM)’s core business. Here are six purchases the company made in the last 12 months alone: