Salesforce.com (CRM) gave you something to work with. It is beginning to blow away the competition because it has no legacy business to go against. You look at Oracle (ORCL), Microsoft (MSFT) and SAP (SAP), and they are all at war within. They all have entrenched divisions that have not and cannot embrace cloud computing because it would crush their gross margins.
Salesforce.com is taking share from all of those companies, and is now the undisputed No. 1 customer-relations-management business in the world. Next year it will become the fastest company to ever reach $4 billion in sales. Salesforce.com is immensely profitable if you look at operating cash flow and free cash flow, which are the only ways I care to look at it. Best of all, after a quarter that got a lot of analysts to grow cool on the stock, the company is showing accelerating revenue. Within the universe of stocks I cover, Salesforce.com is the largest-capitalization company with accelerating revenue growth.
This is the combination that analysts have been seeking. They need to get behind a name that has social, mobile and cloud, and can be a one-stop shop for all things marketing. Salesforce.com is that company. Earlier this year it acquired ExactTarget, the best lead-generation company on Earth. With this, the company now has everything an outfit needs to be able to nail down customer leads, follow up, and then take the business from whomever it might be -- or to offer a new suite of products on top of existing, legacy product. That explains why Oracle felt the need to do a partnership with Salesforce.com.
Now, lots of people do not understand exactly what this company does. That's why you need to go to the website and check the presentations by CEOs showing what Salesforce.com has done for them. Start with the Yelp (YELP) presentation, because it shows how Salesforce.com was able to build Yelp into an international force in a short time. Go to the presentation for Burberry to see how it has revolutionized retail -- something that Home Depot (HD) has embraced this quarter. Take a look at what it has done for banking and then listen to what it's done for Kimberly Clark (KMB).
Then you will understand why I gush about this company. You will understand how much of the research going into the quarter was lukewarm, and how the Sanford Bernstein analyst dominates the coverage with his negativity, not unlike what BTIG's Rich Greenfield did with Facebook (FB). Where's Rich now on Facebook?
Plus, there'll be a catalyst in November: the Dreamforce conference, where Salesforce.com CEO Marc Benioff holds court for 120,000 believers -- and where we'll hear from Yahoo! (YHOO) CEO Marissa Mayer and Facebook chief operating officer Sheryl Sandberg. It's a catalytic event that will take the stock even higher than where it is now.
OK, so what's the downside? The stock is extremely expensive, with a multiple that's hard to look at -- because the valuation has historically been based on operating cash flow, which grows at 34% a year. I believe that's the right metric to look at, because the company has to do subscription accounting, which depresses actual earnings per share. That high stock price -- plus charges that the company isn't really making anything at all yet keeps paying top dollar for companies -- has historically kept many people out of these shares. It's also brought the wrath of short sellers to every quarter, something that's been particularly true during this period of underperformance.
I think the underperformance will end today. Judging by the upgrades and the price-target boosts, I am not alone, either. At last, analysts can get behind a company that has cloud, mobile and social, something that hitherto has been the province of only Google (GOOG) and Facebook, which are both covered by different analysts.
Many will say the stock is already too high to buy. I would say it's done nothing for ages, and yet will become the go-to software name for high-growth managers from here until the end of the year -- and is an ideal options play for all who need to catch up in their performance.
