Well, last week I had a chance to meet with Gordon and we talked about what grabs his interest when an entrepreneur makes a pitch.
Of course, he wants a company that has a big market opportunity (say $1 billion) as well as a qualified team (or, at least, there is a team identified).
True, these are typical things. What else is important?
"What we find that's critical is that a company has shown an ability to build a relationship with customers," said Gordon. "It doesn't have to be a lot of customers. Instead, we want to see evidence that the company is engaging customers."
Unit economics is also key. "What are the customer acquisition costs?" said Gordon. "Is there a low-cost access to leads? We also want to see a short sales cycle."
Something else: Gordon wants a team with strong domain expertise. "On-demand is getting verticalized," he said. "In a way, it's about selling knowledge.
TheStreet.com's Jim Cramer says observers demand perfection, but the arrows slung at diverse thinking offer lessons in making money.
The level of perfection people demand, the level of performance they say they demand, the insistence on making money in any particular way, these are all part of what it is like to be, well, me.
One of the best calls I have ever had was with Apple (NASDAQ: AAPL) (Cramer's Take). It was a happenstance call, as so many really are but pros won't admit that because well, then why pay them? My daughter wanted a second iPod because she had a pink one and needed a blue one. It was that "fashion statement" wakeup call that told me the numbers for iPods in the analysts' reports were way too low.
I pushed the stock hard everywhere. When I got my own show on CNBC, I endlessly lauded Apple in the $70s, $80s and $90s, and made a major statement when I included it in my Four Horsemen of Tech.
At the end of the year I took it off the list, as I did with all the Horsemen except Research In Motion (NASDAQ: RIMM) (Cramer's Take). The $198 price reeked of greed.
Before starting Salesforce.com (NYSE: CRM) in 1999, Marc Benioff was already a veteran of the traditional software world. He spent 13 years at Oracle (NASDAQ: ORCL) and even had a stint at Apple (NASDAQ: AAPL), where he programmed in assembler language. In fact, he started a software company – Liberty Software – when he was only 15 years.
But, of course, Salesforce.com is his biggest achievement and so far it has disrupted the industry. Basically, he has evangelized the virtues of using the Web to deliver software, as well as used the subscription business model rather than the up-front licensing fees. Benioff calls this "The End of Software."
Well, last week, Salesforce.com reported its Q1 results. For the most part, the growth is continuing apace. Revenues surged 52% to $248 million and operating cash flow came to $84 million. There were 2,600 new customers, with the total at 43,600.
A key to success has been integration with various platforms such as Microsoft's NASDAQ: MSFT). Salesforce.com also recently bolstered its partnership with Google (NASDAQ: GOOG) by seamlessly integrating its Office-like apps.
Another key is Salesforce.com's extensive infrastructure that handles huge amounts of transactions. The company plans to build its first international data center in Singapore.
The growth of on-demand software is surging in Asia. According to a Springboard Research report, the market is expected to reach $1.16 billion by 2010, representing a 66% annual growth rate. Salesforce.com is likely to be a big beneficiary of this major trend. Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.
MOST NOTEWORTHY: Salesforce.com, First Marblehead and The E.W. Scripps Co were today's noteworthy upgrades:
Jefferies upgraded shares of Salesforce.com (NYSE:CRM) to Buy from Hold following the company's Q1 results and recommends accumulating shares on any weakness from concerns around a slowdown in bookings. They believe that while bookings growth slowed in Q1, CRM's growth remains stellar and its market opportunity remains large.
Friedman Billings upgraded First Marblehead (NYSE:FMD) to Market Perform from Underperform. The firm believes most of the bad news is reflected in shares and that there are early indications of "thawing" within the private student loan ABS market.
Lehman upgraded the E.W. Scripps Co (NYSE:SSP) to Overweight from Underweight and expects the upcoming July 1st split of Scripps Networks Interactive from Scripps will give the company strategic opportunity by separating high growth cable from traditional newspapers and broadcasting.
It seems that the BCE (NYSE: BCE) buyout plan, has hit yet another bump on the road, only this one could not be as easy to overcome. A Quebec appeals court reversed a lower court and rejected the $33 billion buyout plan accepting the claim of a group of bondholders that the deal is unfair to them. BCE shares are plunging nearly 15% in premarket trading.
Earnings today are due from Barnes & Noble (NYSE: BKS) -- just after the company said it was interested in buying Borders (NYSE: BGP) -- and Gap (NYSE: GPS) -- a day after the clothing retailer announced an expansion in Russia.
Suntech Power Holdings Co. (NYSE: STP) shares are jumping over 7.5% in premarket trading after the solar energy company reported that first-quarter earnings more than doubled on 76% higher revenue. Earnings reached $55.8 million, or 33 cents an American depositary share and revenue reached $434.5. Analysts estimated 28 cents for the quarter.
General Motors (NYSE: GM) reached an agreement with workers at its Kansas City, Kan., assembly plant Tuesday that could help it end a string of labor problems. The deal could end the strike of 2,500 workers at the factory, which makes the hot-selling Chevrolet Malibu as well as the Saturn Aura, since May 5.
Barnes & Nobel (NYSE: BKS) is exploring a possible bid for rival Borders (NYSE: BGP), according to a report in the Wall Street Journal.
Reporting today: Limited Brands Inc. (NYSE: LTD) which is forecast to post earnings of 8 cents a share in the first quarter and Salesforce.com Inc. (NYSE: CRM), which is forecast to post earnings of 7 cents a share in the first quarter among other companies.
Under a new arrangement, Salesforce.com (NYSE:CRM) will begin to market Google's (NASDAQ:GOOG) Apps software. According toThe Wall Street Journal "The Internet search company and Salesforce.com, a provider of online services for salespeople and marketers, plan to announce that they have built technology into their products to make it easier for customers to share information between Salesforce.com and Google Apps."
Saleforce.com has tens of thousands of small business customers who use its products to manage their sales operations. The Google product competes with Microsoft's (NADDAQ:MSFT) word processing, spreadsheet, and presentation products. Google's software runs off of its servers while Microsoft's uses the memory and processing power of the customer's PC or handheld.
With the Micorosft Windows product running on well over 90% of the world's personal computers, the new partnership may not matter. Google's financial reports do not indicate that its Apps business is bringing in any significant revenue. As it reports numbers for the last quarter, if their is no evidence that its software operations are kicking in sales, it maybe an indication that Microsoft does not need to worry and that the Salesforce.com deal is a waste of good PR.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Corinthian Colleges, MSC Industrial and HBOS Plc were today's noteworthy downgrades:
Piper downgraded shares of Corinthian Colleges (NASDAQ: COCO) to Neutral from Buy as they expect the company to face difficulty maintaining Title IV lending at its high default rate schools.
Jefferies downgraded shares of MSC Industrial (NYSE: MSM) to Hold from Buy on valuation, as there is not enough upside to their $50 target to maintain a Buy rating
Credit Suisse lowered HBOS Plc (OTC: HBOOY) to Underperform from Neutral to reflect the weakening housing and mortgage environment.
OTHER DOWNGRADES:
Salesforce.com (NYSE: CRM) was cut to Market Perform from Outperform at Bernstein.
B. Riley lowered Iomega (NYSE: IOM) to Neutral from Buy.
Bernstein downgraded Salesforce.com (NYSE: CRM) to "market perform" from "outperform" according toBriefing.com. The news service also reports that Citigroup initiated Southern Cooper (NYSE: PCU) with a "sell".
Banc of America Securities said that Allstate (NYSE: ALL) may miss first quarter earnings due to payments for storm damages according to the AP.
TheStreet.com's Jim Cramer says that absent any catalyst beyond "cheap," the sector looks set to disappoint.
When people say "tech" on TV, it is almost always followed with "cheap," or "low valuation." To which I say, "So what?" AMD (NYSE: AMD) (Cramer's Take) looked cheap until last night. Motorola (NYSE: MOT) (Cramer's Take) looked cheap and there turned out to be no there there. Cisco (NASDAQ: CSCO) (Cramer's Take) looks cheap but all I hear are earnings cuts. Dell (NASDAQ: DELL) (Cramer's Take) looks cheap, but who cares?
Lots of cheap out there.
Here's my question: where's the catalyst?
Shorts? Stronger growth in the second half? No, the only catalysts I look for in tech are product cycles, and other than Salesforce.com (NYSE: CRM) (Cramer's Take) (nice move there), Research in Motion (NASDAQ: RIMM) (Cramer's Take) and maybe Apple (NASDAQ: AAPL) (Cramer's Take), because we need a new phone there already, there are no new product cycles to speak of.
Back in 1998, Gene Hoffman founded eMusic. No doubt, it was smart timing. However, with the emergence of Napster, Hoffman realized he needed to provide users with a better option. "Our approach was to allow full access to our music library for a fee," said Hoffman, in an interview with me.
It was certainly a smart move. In fact, it became the basis of his next venture: Vindicia, which has announced a venture round of $5.6 million. The investors include Leader Ventures and DCM.
Over the past few years, Vindicia has built a robust platform to allow for on-demand payment management, especially for digital goods. The system helps with credit card breakage, fraud, compliance and various currencies. Some of the customers include Symantec (NASDAQ: SYMC) and Reunion.com.
As seen with the success of companies like Salesforce.com (NYSE: CRM), the subscription business model definitely has a lot of power. Yet, it requires a sophisticated infrastructure, which can be expensive. "Billing is not a core competency," said Hoffman. "It's something that should be outsourced so a company can focus on what it does the best."
MOST NOTEWORTHY: Durect, Red Robin Gourmet and ViroPharma were today's noteworthy initiations:
RBC Capital thinks Durect's (NASDAQ: DRRX) overall portfolio is very attractive and started shares with an Outperform rating and $7 target.
Red Robin Gourmet (NASDAQ: RRGB) was initiated at Jefferies with a Buy rating and $40 target. The firm believes the company has one of the few stable earnings stories in the sector, which should warrant a valuation premium in the current environment.
JMP Securities believes ViroPharma's (NASDAQ: VPHM) valuation reflects several negative scenarios and notes that earnings will likely remain positive and that the company has a strong balance sheet; shares were initiated with an Outperform rating and $12 target.
OTHER INITIATIONS:
Harmonic (NASDAQ: HLIT) was assumed with an Overweight rating and $14 target at Stephens.
ThinkEquity initiated Intuitive Surgical (NASDAQ: ISRG) with a Buy rating and $360 target.
Gordon Ritter, the founder and general partner of Emergence Capital Partners, is one of the top venture capitalists in the on-demand space. Besides being the original VC in Salesforce.com (NYSE: CRM), his firm has also funded companies like SuccessFactors (Nasdaq: SFSF), HireRight (Nasdaq: HIRE) and Lithium Technologies.
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General Motors (NYSE: GM) reached an agreement with workers at its Kansas City, Kan., assembly plant Tuesday that could help it end a string of labor problems. The deal could end the strike of 2,500 workers at the factory, which makes the hot-selling Chevrolet Malibu as well as the Saturn Aura, since May 5.
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Back in 1998, Gene Hoffman founded eMusic. No doubt, it was smart timing. However, with the emergence of Napster, Hoffman realized he needed to provide users with a better option. "Our approach was to allow full access to our music library for a fee," said Hoffman, in an interview with me. .gif){kind=logo}
Alcoa's Q2 2008 earnings transcript
Anheuser-Busch (BUD) sues InBev, what's next?
Wal-Mart might help your portfolio during the recession
