Salesforce.com is one of those companies that business writers and Wall Street investors refer to as an “upstart” or a “growth” company. But those days may be over.
The company pioneered the concept of software-as-a-service, which enables companies and individuals to access software over the Internet via a web browser. Now it looks like the new kid on the block is all grown up, with analysts pegging Salesforce.com’s value at close to $1 billion.
But the company hit a speed bump this week when it announced its third-quarter revenues would clock in at around $274 million. That’s up from $263 million in Q2, but it’s also below that Wall Street had expected from Saleforce.com in terms of sales and revenues. The Street struck quickly, with PiperJaffreey first cutting its advisory on Salaesforce.com from “buy” to “neutral”.
I don’t think the Salesforce numbers were that shabby. Net income for Q2, after all, was 167% higher than the same period in 2007 – a year where the word “recession” wasn’t yet on everyone’s lips. Piper Jaffrey is probably accurate in pointing out that the company’s stock price, which fell to $55 from $65 in a single trading session this week, was too high and unsustainable. Salesforce stock has been trading at 200 times the company’s forecasted earnings per share, so keeping the stock price lifting skyward was too much to ask.
Still, company CEO Marc Benioff is tamping down expectations so analysts aren’t always disappointed about the company’s guidance picture. But he wants to frame that discussion so that Salesforce.com is seen as being on the right path. “We want to demonstrate the validity of the (business) model,” he says. “We’re setting the stage for others that are behind us.”
One key move that the company is making this week is its imminent acquisition of InStranet, a Chicago-based maker of call-center software, for $31.5 million. Salesforce plans to use InStranet's technology both internally, and as a new software-as-a-service offering expected to launch within 18 months. The acquisition provides Salesforce.com with new knowledge-based software technology that helps companies run their own business software programs. T-Mobile and Comcast are already InStranet customers.
Software-as-service is here to stay and so is Salesforce.com. It might be a good addition to your autumn portfolio.