As I have said here many times Facebook (NASDAQ:FB) is a cloud application. Salesforce.com (NYSE:CRM) is also a cloud application. One is a consumer application, the other a business application, and while one is free the other charges, but structurally the two are very similar.
That's how investors see them as well. How else do you explain a loss of almost $20 million, against a year-ago profit of less than a million, getting the headline "Salesforce.com Profit Soars."
What excited the bulls enough to gap the stock up 10% was the company's forecast that it will have revenue next quarter of about $725 million, $12 million ahead of what was expected.
If a company like HP (NYSE:HPQ) or Microsoft (NASDAQ:MSFT) offered these kinds of bottom line results, we'd be shunning them. Fact is we anticipate that, over time, Salesforce.com will be able to keep growing 40% per year on the top line and bring more of that to the bottom line. (Sales on the current quarter were $695.47 million, compared with $504.36 million in the same period last year.)
When there's a perceived boom in your area of business, decent results are spun as spectacular. That's what is going on with cloud applications. Salesforce.com is rising as much from the Facebook hype as anything else.
But on the ground, CRM revenues are replacing the kind of enterprise systems HP and (especially) Oracle (NASDAQ:ORCL) have been selling for years. Such systems are hosted locally, priced based on the number of servers you have, and have to be manned by trained people, programmers and operators. When you're buying it from the cloud, you're just paying for the service.
In the end this means you're renting computing, not buying computing. The equity knowledge you gain from doing it yourself no longer exists - it may in fact be captured by the vendor. But that's an argument we'll have later.
For now CRM's results are the best argument out there for the FB bulls. Personally I just know that all booms bust, so beware and evaluate what's beyond. And to anyone who thinks CRM's momentum is infinitely sustainable I have a one-word answer for you.
Disclosure: I am long MSFT.