But Our Interests Are Aligned!

A company can report billions in revenue growth and beat earnings estimates every quarter while actually generating almost no profit. The trick isn't accounting manipulation. It's that Wall Street and the media have agreed to measure success in a way that makes this possible. What happens when the measurement stops matching reality?

• Salesforce's revenue has soared since going public, but its actual earnings have barely moved. The gap between what the company takes in and what it keeps is mysteriously large, yet this gap is never discussed in the narrative about the company's performance.
• The difference gets explained away through stock-based compensation that's simply excluded from the earnings numbers analysts cite. When measured the way analysts talk about it, the company earned fifty cents per share this quarter. When measured the way actual expenses work, it earned two cents per share.
• Since 2004, employees have received 4.8 billion dollars in stock instead of cash, while actual net income totaled only 360 million dollars on 52 billion in revenue. This isn't a rounding error or a temporary investment phase. It's the actual structure of how the company operates.
• The system only works because a vast ecosystem of investors and media outlets has agreed not to care about profitability or the cost of growth. Break that agreement, start asking uncomfortable questions about what these numbers really mean, and the entire model becomes visible.
• When everyone benefits from not looking too closely, nobody asks whether the interests being "aligned" are actually aligned with shareholders or just with each other. The confidence game works as long as the audience agrees not to examine the pool table too closely.