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Analyst Blog

On Apr 11, 2014, we issued an updated research report on salesforce.com, Inc. (CRM - Analyst Report) following the company’s mixed fourth-quarter fiscal 2014results. Although loss per share was wider than the Zacks Consensus Estimate, the company’s revenues surpassed the consensus mark.

Notably, revenues also improved on a year-over-year basis. A contribution of approximately $96.0 million from ExactTarget positively impacted revenues and was responsible for the 37.2% increase in the same.

Moreover, Salesforce is among the top three Customer Relationship Management (CRM - Analyst Report) vendors in the SaaS enterprise application market. Per U.S. research firm Gartner, the SaaS market is expected to grow 19.5% to $32.8 billion in 2016 from $13.5 billion in 2011.  The key markets to benefit from this are security, storage management and CRM. We believe that Salesforce is well-positioned to capitalize on the opportunity.

The research firm also stated that salesforce.com recorded the fastest growth, breaking into the list of top 10 SaaS providers for the first time from the 12th position in 2013.Overall, the company’s diverse cloud offerings and strong spending on digital marketing are positives.

Furthermore, Salesforce is focusing on strategic acquisitions to expand its market share. In fiscal 2014, Salesforce acquired five companies of which the most prominent was ExactTarget. The company acquired ExactTarget for approximately $2.5 billion in Jul 2013 to expand its cloud-based platform. We believe that these acquisitions will add value to Salesforce’s existing portfolio and the resultant synergies will benefit the company in the long run.

Also, Salesforce’s free add-on offerings like Chatter will enable the company to differentiate its core offerings, making them more attractive for customers. Moreover, this rapid adoption of Salesforce platforms (salesforce 2 and salesforce1) demonstrates its growing opportunities in the ever-growing cloud computing segment.

On the flip side, Salesforce reported an operating loss of $57.1 million in the last quarter, down from the year-ago income of $0.2 million.The company’s significantly high customer acquisition costs and increased investments led to these losses. Moreover, higher costs related to the Oracle agreement and the Dreamforce event in Nov 2013 impacted operating results. While we believe that these investments are necessary to achieve long-term growth, we believe that margins will remain under pressure over the next few quarters.

Moreover, competition from Oracle Corporation (ORCL - Analyst Report) and SAP AG (SAP - Analyst Report), continued weakness in Europe, currency headwinds and an increase in investments could pose challenges, going forward.

Salesforce has a Zacks Rank #3 (Hold).

Key Picks from the Sector

A better-ranked stock worth considering in the technology sector is SanDisk Corp. (SNDK - Analyst Report), carrying a Zacks Rank #1 (Strong Buy).


 

Read the Full Research Report on SNDK
Read the Full Research Report on CRM
Read the Full Research Report on SAP
Read the Full Research Report on ORCL


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