Going back in time, the bearish case doesn't look good. The stock is up over 50% so far this year. Go back five years and it's doubled. But the stock has been running into headwinds lately. It is currently five points off its April high, and was headed down today.
The reason may have been disappointment over its annual Dreamforce conference, where it doubled-down on its proprietary cloud with social and mobile applications. The company is pushing itself as a platform for application developers, seeking to make itself a corporate version of Apple's (AAPL) app store driven in part by acquisitions like Heroku, whose software can be used to transfer Java apps to Salesforce.com.
Salesforce is betting that clouds will evolve as they've been evolving, with public clouds having an immense cost advantage over private clouds or enterprise applications, and enterprises moving at all deliberate speed to take advantage of this. Tim Travis writes that this reminds him of 1999. Even if earnings move up 30% as the company estimates, he thinks the stock is overvalued.
The concern here -- and I'll admit I share it -- is that we expect the cloud to evolve as past platforms have evolved. That is, we expect enterprises will want their own clouds, that they will eventually reject the public cloud over concerns of security, just as time-sharing gave way to minicomputers in the 1970s.
The problem with that, as my old ZDNet colleague Joe McKendrick writes at Forbes, is that those fears are overblown, and those assumptions may be in error. The cloud is actually more secure than hosting your own applications. Add that to the cost advantages and it starts to become irresistible.
There will be other objections. Salesforce can expect more direct competition from applications hosted at Amazon.com (AMZN) and Google (GOOG). It can expect closer competition from enterprise software leaders like Oracle (ORCL) and Microsoft (MSFT). Also, IBM (IBM).
Maybe. What investors are buying right now is Amazon-like growth and Amazon-like profit margins. In fact, the two stocks have been tracking pretty closely together throughout this year, although if you go back further in time you'll find Salesforce with an ever-widening lead.
So be as bearish as you like. Investments often climb the wall of worry to move ahead. If everyone is buying, that's when you should panic. In other words, until you start seeing more bullish commentaries here at Seeking Alpha, Salesforce remains a buy.