Salesforce (NYSE:CRM): Cloud Juggernaut

      No Comments on Salesforce (NYSE:CRM): Cloud Juggernaut

Salesforce was started by a former Oracle executive and is up 65% losing Dec 31, 2009 at $73.77 and trading today at around $112 and has monetized the cloud better than any company I know alongside VMWare.

As a content provider I often run across start up companies and they all conclude that the cloud must be utilized to keep costs in line while staying connected to clients and remote workers. Below is a review by some smart guys who make valid points about current valuations for cloud related stocks. Basicly they conclude that the market has priced in revenue thru 2011, and it really looks toppy on the chart.  It would make sense as stocks run 6-9 mo’s in fron of earnings traction.

According to Gartner, increased customer awareness, reduced capital and operational cost, and ease of use will drive the global cloud services market to $148 billion by 2014. With a solid product portfolio and distribution, is well-positioned to benefit from broader market adoption and to continue to drive share gains relative to incumbent legacy software vendors. Many expect the company to continue to show solid revenue growth reflecting investments in new technology and distribution capability.

Looking to the cloud. In conversations with businesses of all sizes, we continue to see the trend that businesses (both SMB and larger enterprise customers) view cloud-based services as a logical progression to re-align the IT department to optimize and enhance core business functions. While the initial drivers to cloud adoption are often lower cost, greater application mobility, and ease of use, we are also finding that the added benefits of collaboration, real-time software updates, as well as the network effects of more users in the system, allow companies to glean more efficiency and expertise from existing resources.

Increasing market demand for cloud services. In a recently released report from Gartner, the consultancy estimates that the global cloud services market will surpass $68 billion by the end of the year and will grow to $148 billion by 2014. Gartner believes that this “hyper-growth” in cloud computing and services will come as a result of increased awareness in the enterprise followed by a spurt in technology partners and providers eager to capitalize on the large projected market opportunity. From our conversations, we believe that IT managers are now thinking strategically about their IT deployments in an effort to increasingly leverage cloud services to allow for scale in an environment of ever-increasing application availability.

What’s all this Chatter about “Chatter”? The company recently released its online messaging/collaboration platform named Chatter, which we believe could be a meaningful future growth engine for the company. Chatter is an enterprise collaboration application and development platform that operates as a stand-alone application for new and existing salesforce users, and it becomes a standard feature for the development environment. Chatter could be salesforce’s strategic lever to deepen penetration at installed customers and to further differentiate its application and platform offerings. The product is available for free for all paying users of Salesforce Sales Cloud, Service Cloud, and Force Cloud. For a standalone license of Chatter, a customer would pay $15 per user. We believe that Chatter offers significant cross-sell opportunities for, as it is salesforce’s first product that can be adopted enterprise-wide. While the price point is significantly less than its CRM and Service Cloud offerings, in our opinion, the market is significantly broader, therefore, allowing for penetration beyond the core sales and customer service customer base.

Demand for SFA (Salesforce Automation) remains robust. In its most-recent quarter, the company saw solid demand trends for its core salesforce automation product (two-thirds of new business) across all geographies, driving accelerated bookings growth and notable revenue outperformance. Many believe the company’s recent decision to invest in broadening its distribution platform is a solid sign of a secular growth story. It is our opinion that new product initiatives have led the company to experience lower customer attrition rates as well as allowed it to continue to gain share against incumbent legacy software vendors, including Oracle, SAP, and Microsoft.

Service Cloud, a solid new driver for growth. During its most-recent earnings call, the company mentioned that the Service cloud offering is growing at a significantly faster pace than the Sales cloud and now accounts for one-third of total bookings. Service cloud, which includes eService, knowledge base, and agent desktop, should push deeper penetration within the enterprise of CRM products and become a major growth driver over the next several quarters.

For more information visit

Leave a Reply