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  • Salesforce.com, Inc. (CRM): $10 Billion Playbook 1 comment
    Jan 2, 2014 3:21 PM | about stocks: CRM

    If you are looking for a "growth investment" for 2014 and beyond, you might consider Salesforce.com (NYSE:CRM). This is a large company that has been around for a long time, working with other companies in the business-to-business arena, helping them generate new clients.

    The company made a commitment to grow its revenue and has had impressive growth numbers for the last four years. In January 2011, the company's full year revenue totaled $1.65 billion. Three years later, in January 2013, that revenue had grown to $3.05 billion.

    For 2015, the company expects a growth rate of about 28%. Typically, when an industry matures, one could expect growth in the single digits, but this industry is far from maturing and Salesforce continues to believe it can grow close to 30%.

    If you are looking for a long-term value/growth investment, the company's numbers continue to be very attractive. It is the fastest-growing enterprise software company in the nation. Its revenue growth for CY 2013 is up 33%, which is more than double the second closest software enterprise company, Red Hat (NYSE:RHT), which came in at 14% for the year.

    The company has made a clear cut choice to make revenue growth its top priority, and this has led Salesforce to become the eighth largest software company in the world. There is not a lot of difference in revenue between the fourth and eighth software positions. The top three companies in the world have a minimum three times the revenue as the fourth position. Here are the top four software companies in the world by revenue (in millions):

    • Microsoft (NASDAQ:MSFT) $83,685

    • Oracle (NYSE:ORCL) $38,368

    • SAP (NYSE:SAP) $17,230

    • Symantec (SYM) $6,648

    Salesforce generated revenue of $4.055 billion in comparison. As the top three companies have achieved dominance in their specific fields, this is what Salesforce is striving for.

    What made the top three stand out in their time?

    They became standards of development in their era. They delivered world class applications that were broad in what they were capable of doing. Each company became its own "ecosystem." They surrounded themselves with support companies that complemented what they envisioned and it helped them grow their software empires together. Taking these companies as an example, Salesforce is headed in the same direction, only in its industry.

    The $10 billion Playbook

    Ultimately, if you look at the way the company is going to grow toward $10 billion, it's going to be in a growing market.

    How good is the market the company's in?

    The majority of Salesforce's business is in "Customer Relationship Management" (CRM). On a worldwide scale, this is a $22 billion industry. The industry is growing. Five or six years ago, the industry was about $8 billion in size, and the CRM market will continue to be the fastest-growing segment of the Enterprise Software Industry.

    This is exciting to hear, but even more exciting is the fact that the market Salesforce is in is nowhere near its growth potential. In Salesforce' recent presentation, they presented a slide from research done by Gartner, Inc. that estimated the industry the company works in will climb to $58 billion by 2017. That is almost a 57% increase in the next four years.

    Marketing Automation

    Who is going to win out there in today's markets where consumers are now the "important client?" The "Marketing Automation" division is the fastest growing division in the CRM sector and is expected to double in size by 2017. This is the arena where interaction with the individual clients is now going to take place.

    Where Salesforce has been a "business to business" company, its clients are "business to consumer" companies. Because of technological growth, these companies no longer cater to faceless consumers but each "client" now has a face and can interact with the company. Who is going to win customer loyalty? Those who can communicate well with their clients.

    Businesses will have to develop top-notch channels by which customers can be reached, so communication with customers is unparalleled around the board. They will also have to answer the question: "How do you get to your customers?" Mobile contact is going to be extremely important, even as we move into the future.

    This is all new and will continue to grow and companies like Salesforce will be working with long-term clients for years to come. The company has grown and is expected to continue to grow at a 20% clip for the next 3 to 5 years. As the company invests in itself for growth, the value of the stock should also continue to rise. As with all companies, it will have its ups and downs with a market, but this company looks like it would make a good long-term investment if somebody is looking for growth or value.

    MissionIR provides investor relations services to publicly traded companies in exchange for compensation. This article may be part of our efforts to widen a client's exposure. To read our full disclaimer, visit http://disclaimer.missionir.com

    Stocks: CRM
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  • Michael Blair
    , contributor
    Comments (5018) | Send Message
     
    @Mission IR - growing 28% in a market that is growing at 14% means someone else has to lose. Who? IBM? Microsoft? SAP? Oracle? Salesforce.com reports growth that has come in part by acquisitions rather than organically. It paid cash for the last one and now has a levered balance sheet. If they miss a quarter on growth metrics, this virtually profitless company will tank big time. This ride will end badly in my view. I would not touch it long, and hold a short position.
    2 Jan 2014, 06:30 PM Reply Like
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