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Economic Woes Bode Well for Salesforce.com

By Erika Morphy CRM Buyer ECT News Network
May 22, 2008 2:20 PM PT

Salesforce.com was created during cloudy economic times, and its business model -- per-user, per-seat pricing when the market offered nothing but million-dollar enterprise-based pricing -- took off, precisely for that reason.

Economic Woes Bode Well for Salesforce.com

Now the company, which has since remade itself into an enterprise class vendor that is still available at moderate enough pricing, is reaping the benefits of its original case to business as the economy worsens.

For the fiscal first quarter, Salesforce.com reported net income of US$9.6 million, or 8 cents a share. Revenues rose a respectable 52.5 percent to $247.6 million. These earning slightly exceeded analysts' expectations, which had been around 7 cents a share, or $235.8 million.

Revising Upward

Overall, the news coming out of the company was good, Fred Ruffy, an independent stock analyst, told CRM Buyer.

"Although the earnings per share number wasn't much better than expectations, the growth in sales and upward revision to second quarter and 2009 revenue numbers seemed to reassure investors," he said.

Besides the current earnings, Ruffy also pointed out that the company has raised its second-quarter revenue forecast to between $258 billion and $259 billion, compared to analyst estimates of $250.8 million. For the 2009 fiscal year, it expects revenues of $1.06 billion to $1.065 billion, versus $1.05 billion analyst consensus estimates, he noted.

Shares Get a Lift

As to be expected, shares of Salesforce.com were trading at session highs this morning, up $5.74 to $68.40, as investors reacted to the news.

Trading had been cautious leading up to the report, Ruffy said. "In the week ended May 21, the stock had fallen from $69.40 a share to $62.66, or nearly 10 percent. There appears to have been some concern that the company might disappoint. However, it didn't, and shares are trading broadly higher in reaction to the news."

Back to Its Roots

Nippon Telephone and Telegraph in Japan, and Areva in France were among the new customer wins Salesforce.com logged in this past quarter. Both large players; they illustrate Salesforce.com's ever growing product line and development platform designed to draw in enterprise users.

"Salesforce.com has consistently proven that it knows how to deliver value," Rebecca Wettemann, vice president of Nucleus Research, told CRM Buyer. "Companies that want to leverage internal resources for development and innovation instead of just babysitting servers are opting for Salesforce.com."

However, the company is likely to find its first customers -- SMBs -- providing a boost to the company's bottom line in the coming months, especially if the economy continues to worsen, she said.

"We will continue to see broader adoption of on demand as companies remain concerned about budgets but still want to deliver value to their customers," Wettemann predicted.

Pushing Force.com

At the same time, pushing its Force.com platform further into its customer base is a key priority in the coming months, said Marc Benioff, CEO and chairman of Salesforce.com.

Introduced with the rollout of the Winter '08 release, Force.com allows users to develop their own on-demand user interface on top of applications they have developed with the Salesforce.com series of development tools. Since its release, Salesforce.com has been introducing new development tools -- primarily its Force.com cloud computing architecture -- and new product lines, all designed to encourage adoption.

The most famous example of the latter is its Salesforce for Google Apps, rolled out in April. The joint product leverages the Force.com platform to allow developers to introduce their own innovations as well as provide a tool set to build new business applications, while Google's application programming interfaces enable their integration and extension in Google Apps.

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