New Rivals May Torment Salesforce.com and Concur - Barron's

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Includes: CNQR, CRM, N, SFSF
by: SA Eli Hoffmann

Two of the "most outrageously priced software stocks around," Barron's Plugged-In says, are Salesforce.com (NYSE:CRM), up 56% over the past year, and Concur Technologies (NASDAQ:CNQR), up 100%. Both stocks fetch a rich price/free-cash-flow multiple of about 35x-40x.One reason for their richness is their projected revenue growth: 49% for CRM and 25% for CNQR.

But investors seem to be ignoring the fact that the two firms are no longer the only publicly-traded "pure plays" on red hot SaaS [software as a service, or web-based applications]. Newly public Netsuite (NYSE:N) and SuccessFactors (NYSE:SFSF) develop and market software similar to that of the incumbents. The latter was initiated this week by Pacific Crest Securities with a rating of Outperform, which called the two-million-user firm "the world's largest on-demand application provider."

And according to SEC IPO filings, there are more in the pipeline, including Varolii, whose software automates collection agencies' calling process; and Convio, whose customer-relations software targets nonprofit organizations. Keep in mind as well that most commercial software packages will at some point probably attempt web-based apps. All this bodes for "fierce jockeying" among SaaS developers to gain favor in investors eyes, and may mean Salesforce's and Concur's days of exclusivity and rich premiums are numbered.