Still growing, if a bit less briskly
$CRM was pounded in after-hours trading post yesterday’s earnings announcement, despite beating revenue estimates and raising guidance, largely due to the company lowering revenue growth expectations for 2011.
The poster child for Software-as-a-Service (SaaS), by all accounts, continues to execute very well in a tough business environment. $CRM is richly-valued and has little room for a misstep, but at the same time there are few reasons to think that the fundamentals have changed significantly.
Traditional enterprise competitors such as SAP ($SAP), Oracle ($ORCL) and Microsoft ($MSFT) continue to attack, but do so half-heartedly because any attack on $CRM is also an attack on their own license revenues and business models, and pure-play SaaS competitors such as NetSuite ($N) and RightNow ($RNOW) remain also-rans.
$CRM should be seeking new growth opportunities and using their still-rich valuation to acquire complementary SaaS technology – they have done some small deals including InStranet (a direct $RNOW competitor), Koral and Sendia – but no game-changers – yet.
The company’s DreamForce event, which is taking place right now (no pun intended), could yield some surprise announcements, but whether or not anything is announced this week I’d expect to see the company get more aggressive on the M&A front. Targets could include $SFSF, $TLEO, $VOCS, $EPAY, but the problem is that with the company’s rich valuation it is difficult to find large deals that are growing quickly enough to not be dilutive. More likely, the company will continue to do smaller tuck-in acquisitions of private firms where and when the growth opportunity is present.
The other possibility is the long-rumored acquisition of $CRM. The company has a deepening relationship with $CSCO, $GOOG is always in the picture, $IBM is a possibility and of course one of their semi-competitors – $MSFT, $SAP or $ORCL – could decide to make a move.
Fundamental story unchanged
I’ve been a longtime follower of both $CRM and SaaS (or as it’s now often called, ‘Cloud Computing’) – and CEO Marc Benioff was an early and ongoing evangelist of theSaaS/Cloud value proposition and market opportunity. That value proposition remains intact and as strong as ever – market resistance is rapidly evaporating and the replacement cycle for more traditional enterprise systems kicks in. As $SAP’s big miss last month demonstrated, the traditional enterprise software market is quite mature, and growth for the traditional players is going to be increasingly hard to come by – $CRM is well-positioned to pick up a big portion of the slack as the enterprise moves to the Cloud.
Bottom line – if you liked the fundamental $CRM story yesterday, there’s just as much reason to like it today.