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Salesforce.com (NYSE:CRM) is expected to announce its fiscal year Q1 2012 earnings on Thursday (May 19th). We believe the main focus of the earnings will be how the company’s newer cloud-computing products are faring, and we will keep an eye on the company’s operating margins as expenses have been steadily outpacing revenue growth in the past couple of years. However, Salesforce.com’s top-line growth is still impressive and beyond that of competitors SAP (NYSE:SAP), Oracle (NASDAQ:ORCL), Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM).

We currently maintain $118 price estimate for Salesforce.com stock, which is about 10%-15% below market price.

Focus on company’s newer cloud based products…

Salesforce.com is a pure cloud computing player with its flagship Customer Relationship Management (CRM) product. However, investors have high expectations from company’s other products like Force.com, AppExchange, Database.com and Chatter. The company hopes to penetrate the fast growing cloud computing market through these products, which is something we want to watch.

We discussed about the potential prospects of these products in our earlier notes titled Salesforce.com’s Development Platform Could Become a Major Force and Salesforce.com Management Upbeat about Chatter’s Prospects.

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…And on operating expenses

The company’s operating margins have declined over the last few years due to rapid rise in R&D and SG&A expenses. Particularly in the last year, the company mentioned that increases in headcount and commission expenses as well as the the Dreamforce event and the expansion in international markets led to increases in operating expenses.

We discussed about these issues in detail in our earlier note titled Should We Be Worried About Salesforce’s Rising Operating Expenses?, and reached the conclusion that although the management sees further near-term investments in sales and marketing resources as necessary to grow the business, the higher expenses will ultimately need to be corralled relative to top-line revenues and gross profits.

Disclosure: No positions

Source: Earnings Preview: Salesforce.com