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: 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.
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.
salesforce.com (NYSE: CRM) shares are rising strongly today, after the company announced Q4 earnings that beat estimates by 2 cents and predicted that it will earn between 6 and 7 cents per share on $233 million to $235 million in revenue in the first quarter, above Wall Street estimates of 6 cents per share on $228.5 million in revenue. CRM also expects fiscal 2008 earnings to come to 32 to 33 cents per share, in line with analyst estimates of 32 cents per share. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CRM.
After hitting a one-year low of $37.24 in August, the stock hit a one-year high of $65.52 in December. CRM opened this morning at $52.88. So far today the stock has hit a low of $57.54 and a high of $63.47. As of 10:45, CRM is trading at $61.87, up $9.25 (17.8%). The chart for CRM looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just three months as long as CRM is above $40 at May expiration. salesforce.com would have to fall by more than 35% before we would start to lose money.
CRM hasn't been below $40 since August and has shown support around $53 recently. This trade could be risky if the company's earnings do not turn out to be as good as they seem at first glance today, but even if that happens, this position could be protected by the support the stock might find at its 200-day moving average, which is around $50 and rising.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CRM.
Salesforce.com (NYSE: CRM) shares are higher today after a Piper Jaffray analyst reiterated his Buy rating and $70 price target on the stock, citing increased user satisfaction and the potential of higher revenues with the company's adoption of the AppExchange program. But the real excitement on the Street stems from rumors that the CRM has approachedOracle (NASDAQ: ORCL) with a $75 a share sale offer. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CRM.
After hitting one-year low of $37.24 in August, the stock hit a one-year high of $65.52 in December. CRM opened this morning at $53.06. So far today the stock has hit a low of $53.06 and a high of $55.90. As of 11:25, CRM is trading at $54.76, up $3.89 (7.7%). The chart for CRM looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
A slowdown in growth in the telecommunications equipment industry may result in a joint venture between Motorola Inc (NYSE: MOT) and Nortel Networks Corporation (NYSE: NT), that would have combined sales of about $10B, the Wall Street Journal reported.
The Wall Street Journal also reported that Yahoo! Inc's (NASDAQ: YHOO) board is planning to reject the Microsoft Corporation (NASDAQ: MSFT) bid of $31 per share, feeling that Microsoft would be taking advantage of a deteriorated Yahoo! share price. Sources said Yahoo! will not consider any offer under $40 per share.
Sony Ericsson, a joint venture between Sony Corporation (NYSE: SNE) and LM Ericsson Telephone Company (NASDAQ: ERIC), admitted that its business is weak in India, China, and the U.S. The joint venture has designated those three countries as priorities, the Financial Times reported.
WEB SITES:
According to a source, the Silicon Alley Insider reported that Yahoo! is expected to let go 1,000 employees or more during the week of February 12.
Ah, rumors. The stuff that makes stocks go up and down. At least juicy rumors keep things interesting.
There is some chatter in the blogosphere emanating from SiliconValleyWatcher that enterprise database vendor, Oracle Corp. (NASDAQ: ORCL) may be in the process of scooping up upstart Salesforce.com (NYSE: CRM). Not only is SVW hearing this from a reliable source but it appears the buyout may come at a very large premium -- 50% over CRM's share price today.
I feel like this tie-up has been telegraphed from the inception of Salesforce.com as an organization. Salesforce.com plays in the SaaS (Software as a Service) space, effectively letting both large and small sales organizations rent the software that manages their sales pipelines.
I've written about SaaS vendors previously and how they harbinge the future of the software industry. Combine a pay-as-you-go model that addresses the long tail of small businesses with the sales prowess of an Oracle at the Fortune 500 level and you have an extremely interesting M&A.
As SiliconValleyWatcher posits, it's going to come down to numbers. Salesforce's effervescent (understatement) CEO, Mark Benioff, came out of Oracle and could play the role of Larry Ellison's successor. Benioff knows he has some great assets and is looking to best capture their value.
Is Oracle going to pay up?
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds no position in the stocks mentioned.
Last week Forbes released its annual list of the fastest growing tech stocks, and it shouldn't be much of a surprise that Google Inc. (NASDAQ: GOOG) topped the list, with nearly $15 billion in sales, representing five-year sales growth of 155%, and 30% EPS growth. To make the list, companies had to have significant sales growth over the past year and five years, as well as a good earnings forecast for the next three to five years. Companies with significant legal problems or corporate governance issues were excluded.
So if, like Aaron Katsman, Georges Yared, and Jim Cramer, you are bullish on tech stocks, then there's plenty on the Forbes lists worth taking a look at.
Before tailgating begins today, I like to take the time to run through some equity research. While not as exciting as reading Tim Ferriss' 4-Hour Work Week and some of the radical lifestyle experimentation he writes about on his blog, I stumbled upon a company whose IPO I missed, SuccessFactors (NASDAQ: SFSF).
I've written before about new Software as a Service (SaaS) firms like Salesforce.com (NYSE: CRM) and Concur Technologies (NASDAQ: CNQR) that deliver their software via the internet. Companies employing the software typically rent it and pay as they use it. The software is hosted, which means the software provider manages updates and versions.
I thought it would be worthwhile summarizing some of the research put out this week on the firm by the likes of JPMorgan and Goldman Sachs.
Since launching Salesforce.com (NYSE: CRM) in the late 1990s, Marc Benioff has built a multi-billion dollar operation, which is still growing at a break-neck pace. Interestingly enough, Benioff thinks that a big key to success has been his company's philanthropic efforts – that has helped with employee morale, community involvement and even customer loyalty.
To this end, Benioff used the 1-1-1 model. When Salesforce.com was founded, 1% of the stock went into a foundation. After that, 1% of the profits were put into the foundation and employees have spent 1% of their time on philanthropic activities.
Salesforce.com (NYSE: CRM) and most other stocks in the software business are trading higher after competitor Oracle (NASDAQ: ORCL) reported second-quarter earnings after the close yesterday. ORCL had earnings of $1.3 billion, or 25 cents a share, above analysts' estimates of 23 cents per share. ORCL cited better-than-expected software sales in its earnings report, which gives the whole tech sector a lift today. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CRM.
After hitting a one-year low of $35.55 in January, the stock hit a one-year high of $60.82 yesterday, which it has obliterated this morning. CRM opened this morning at $60.77. So far today the stock has hit a low of $60.77 and a high of $64.50. As of 11:35, CRM is trading at $63.78, up $3.83 (6.4%). The chart for CRM looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a February bull-put credit spread below the $45 range.
Corporate strategy expert Sramana Mitra had a nice post yesterday that looked at a broad spectrum of the burgeoning Software as a Service (SaaS) market. Companies like salesforce.com, Inc. (NYSE: CRM) are revolutionizing the software industry by providing hosted versions of traditional software packages and essentially renting them to customers. Customers benefit by paying less money upfront and don't assume the cost of ownership, opting instead to rent software from SaaS companies. Updating and maintenance of software is handled by SaaS firm.
I've been looking at Concur Technologies, Inc. (Nasdaq: CNQR). Concur's solutions address automate corporate travel and expense management. Larry Schutts had a good post on the firm saying:
Its flagship program provides the process and information for management to reduce manual processing, improve internal controls, increase business policy compliance, speed up reimbursement, and increase expense report accuracy. The software features Web-based modules for tracking, submitting, and processing reports.
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