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salesforce.com (CRM) Initiated At 'Outperform' By FBN Securities; PT $210

 March 20, 2013 10:38 AM

(By Balachander) salesforce.com Inc. (NYSE: CRM) shares were initiated with an "Outperform" rating and price target of $210 by FBN Securities analyst Shebly Seyrafi.

The company is growing very well as it gains share in the SaaS CRM market and as it successfully diversifies away from its core sales force automation (SFA)/sales cloud into service, marketing, and platform clouds, the analyst said. 

SaaS (software as a service) is a very strong technology as it allows customers to access software remotely from the "cloud" (off-premises), in contrast to legacy on-premises solution. The analyst said the CRM segment of SaaS is projected to grow at a 16% revenue CAGR from $5.0B in 2012 to $9.0B in 2016.

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The analyst said CRM currently has a rather low operating margin (10%-13% NG) as the company is still investing heavily for growth. However, we expect the company's operating margin to more than double (and reach a mid/high 20s%, possibly 30%+) over the next 10 years as the company reduces investment as growth invariably slows.

The company has invested quite a bit in its "Service Cloud", which is its set of technology offerings that enable companies to service customers through the cloud (instead of traditional call centers), Seyrafi noted. Although Service Cloud is still a small percentage of revenue, the analyst believes that it is now growing faster than the corporate average and may account for 30% of new subscription revenue.

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Salesforce.com's CRM offering faces strong competition from large software companies such as SAP (SAP), Oracle (ORCL), and Microsoft (MSFT), all of whom are getting more SaaS religion. With its late 2011 acquisition of cloud CRM company RightNow for $1.5B, Oracle increased the competitive heat against Salesforce.com as Oracle now has four CRM offerings, the analyst said.

The stock, which has been trading in the 52-week range of $120.18 to $187.94, traded 0.58% higher at $172.23 on Wednesday.



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