Companies are seeing the benefits of cloud computing, and software as a service (SaaS) is at the forefront. With more and more data bombarding companies and the high security threats that come along with managing all that data, groups like salesfoces.com have built their business models around providing services to help companies cut costs and understand their customers better. Instead of installing and maintaining software in-house, companies can access information via the Internet, freeing themselves from complex software and hardware management. The SaaS provider manages access to the application, including security, availability, and performance.
SaaS has actually been around for quite some time, but it has gotten more attention recently with the higher rate of cloud transition within companies. Salesforce.com, which began in1999 and based in San Francisco, is one of the leading enterprise cloud computing company offering service subscriptions.
Salesforce.com is growing at 35 percent annually, and the company is on track for at least $2.2 billion in sales this year. One of the big reasons the company looks like it will continue to grow is its social media initiative. Customers have been asking for better ways to respond to the explosive growth of social media. The company will introduce a newer, higher-priced option for its “Winter ’12” software, which will let sales managers monitor what’s being said about their company and its products on Facebook, Twitter, and LinkedIn. CEO Marc Benioff says the social media push will help Salesforce nearly quintuple annual sales, to $10 billion, though he sets no date for that goal. Wall Street is optimistic. Today the stock is trading at 821 times last year’s earnings, 6.6 times the tech industry average, according to Bloomberg data.
Is it worth the hype?
I read an article on Forbes today that talked about their extremely non-conservative accounting approach that perhaps make themselves look better than they are. From Forbes tech article date 8/25:
“Bernstein Research analyst Mark Moerdler asserts in a research note that Salesforce.com has substantially increased its reported results on both a GAAP and non-GAAP basis with the use of both aggressive accounting practices and a riskier-than-average approach to investing corporate cash. As Moerdler makes clear, nothing the software-as-a-service company is doing is illegal, their practices are well disclosed, and the company’s approach has been approved by its auditor. But the Bernstein analyst makes clear that Salesforce certainly does appear to be taking an approach to financial reporting that is less conservative than some peers. By Moerdler’s calculation, Salesforce.com’s results for the July 2011 fiscal year would have been 79% lower on a GAAP basis and 30% lower on a non-GAAP basis if the company used the most conservative accounting and investment practices used by other large software companies. He contends that using more conservative accounting, the company would have reported 10 cents of GAAP profits, rather than 37 cents, and 86 cents in non-GAAP profits, down from $1.22.”
I still believe salesforce.com has a lot of upside, especially with the new social media tools it is rolling out. However, they ought to be careful with their accounting, or their hype could end up lost in the cloud.
Doug Kimball's Professional Blog 