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SaaS: Salesforce Poised to Fall or to Break Away?
Salesforce.com closed out 2007 with an impressive number: more than 1,000,000 active users. Salesforce stock is up 56 percent over a year ago and the company expects to exceed $1 billion in revenues in FY09. The SaaS market continues its strong growth and Salesforce is the market leader.
On the surface, things are looking pretty good for Salesforce. The problem is that their success hasn’t gone unnoticed and competition growing. Following the success of Salesforce, for example heavyweights like SAP and Microsoft are pumping billions of dollars into the SaaS space. And competitors NetSuite and SuccessFactors are also adding to the pressure. Exactly how much of a threat these other offerings will ultimately be to Salesforce aren’t at all clear.
Analysts aren’t in agreement on the direction of Salesforce for the coming year. On Monday Goldman Sachs downgraded the stock from “neutral” to “sell”. The same day UBS upgraded the stock from “neutral” to “buy”. The announcements whipsawed the price of the stock and Salesforce finally closed down 2 percent for the day.
Judging from inside stock trades too, insiders must also be questioning how much longer the party will last. Company insiders have also sold off almost 3 million shares of stock over the last six months, compared to just 11,000 shares purchased.
Right now companies like Salesforce and NetSuite are “pure-play” SaaS companies, and as such, can command very high multiples for their stock price. As more companies offer SaaS alternatives, Salesforce may not be able to retain its glow of uniqueness. Salesforce is days away from their Winter release and also plans to continue their growth with their APEX and Force.com initiatives.
