Salesforce.com Boosts Outlook After Strong Q2

Posted Aug 20th 2010 12:30PM by Tom Taulli
Filed under: Earnings Reports, Forecasts, salesforce.com inc (CRM)

In the fast-growing cloud computing space, Salesforce.com (CRM) is the franchise company. However, this means that the valuation is at premium levels. For example, the stock trades at nine times revenues and 174 times earnings. In other words, this stock is now for those who think the growth ramp will continue. And yes, based on the most recent quarterly report, it does look like good times will not end for awhile.

Profits came to $14.7 million, or $0.11 per share. But excluding certain stock-based charges, the adjusted earnings were $0.29 per share. As for revenues, these climbed 25% to $394.4 million.

There were 5,100 new customers in the quarter, for a total of 82,400. This is up 30% over the year.

However, the real excitement for investors was Salesforce.com's guidance. For the full-year, the company raised its estimates on earnings by two cents to $1.15 to $1.17. Revenues are forecast at $1.6 billion, up from a range of $1.55 billion to $1.56 billion. No doubt, the momentum is continuing.

A big advantage is that Saleforce.com's rivals -- like Microsoft (MSFT) and Oracle (ORCL) -- have been laggards. They are still clinging to the old software model.

Instead, the main risks for Salesforce.com include potential competition from upstarts as well as problems scaling for growth. But so far, the company knows how to protect its turf.

Still, some investors may consider Salesforce.com's stock too rich. The good news is that there are other cloud-computing companies that offer nice growth, such as NetSuite (N). In fact, the company also had a solid quarterly report and the stock price has been climbing.

Tom Taulli is also the author of several books, including the Complete M&A Handbook and also develops iPhone apps for finance.