"Run properly, as Salesforce.com (NYSE: CRM) does, a cloud computing network also offers greater security, greater reliability, and lower costs (thanks to ef?ciencies of scale)," explains Timothy Lutts.
In The Cabot Stock of the Month report, he suggests, "Salesforce.com is very well managed, and in our mind its leadership in cloud computing gives it a fundamental advantage that should translate into growing market share gains and steady revenue ?ows for years to come."
"The company was founded a decade ago by a former Oracle executive, and today it's a leading vendor of Customer Relationship Management (CRM) services.
"But unlike Oracle, which sells software that users install on their own computers, Salesforce.com sells access to its own network, which is where all of its software applications are running.
"This business model is called cloud computing, and it makes a lot of sense. With cloud computing, users simply pay a regular monthly fee for access to the applications they need.
"They don't need to buy servers, install and upgrade the software, troubleshoot con? icts, hire and pay an IT department, replace the servers, and generally worry about technology.
"They just decide what applications they want to use, and then pay for them, secure in the knowledge that the host—in this case, Salesforce.com—will take care of all the technical issues in the same way a landlord takes care of an apartment building.
"Also, it's device and location independent, meaning users can access it from virtually anywhere. That ability to access the network and use the software anywhere is a big draw for the 59,300 ?rms that use Sales Cloud, the world's most popular sales application.
"Sales Cloud maintains and organizes user data on accounts, contacts, leads, opportunities, campaigns, analytics, forecasting, approvals, work? ow and more.
"It enables the building of Web sites that interface perfectly with all their data. And users can even access the network from their Blackberries and iPhones, so they're always in touch.
"In addition to the Sales Cloud, there's the Service Cloud, which includes functions for call centers, customer service and social networks (Facebook and Twitter), because we all know that keeping existing customers satis? ed is even more important than getting new customers. These Salesforce.com clouds are available in 23 languages.
"Financially, Salesforce.com's business is a big success. It's been growing steadily over the past decade, though earnings trends have been irregular, impacted by sporadic acquisitions. Second quarter earnings were released last Friday and came in way ahead of analysts' estimates.
"Most impressive from our point of view was the net addition of 3,900 customers in the quarter, an increase of 32% year-over-year, and the increase in cash to $1.0 billion, a sum that will likely come in handy for future investments. (Maybe we'll see further investment in the electronic medical records business, where growth potential is enormous.)
"CRM won't be the hottest stock; the company is just too big. Technically, the stock is strong. From March to April, it delivered market-beating performance, and then spent three months consolidating its position at 44.
"The earnings news provided the spark to break free from that level—on more than four times average volume—and today the stock is attractive in the 50-54 range, as experience tells us that the high-volume breakout is likely just the beginning of a healthy advance."
