Analysts Air Concerns Over Salesforce.com's Outlook

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How Salesforce.com Masters the Cloud

Companies continue to find successful methods for integrating with the Force.com platform.

Wall Street analysts usually welcome news of acquisitions, seeing them as a sign that companies are gearing up their growth plans. CRM giant Salesforce.com has been gobbling up smaller companies for the past year, among them platform-as-a-service provider Heroku, email contact management startup Etacts, human capital management provider Rypple, collaboration specialist Dimdim, and Manymoon, Radian6, Assistly and Model Metrics, all of which offer solutions that fall under the broad "social" category. Salesforce last month introduced a solution based on Radian6 technology called the Radian6 Social Marketing Cloud.


But Salesforce's stock took a beating earlier this week after Sanford Bernstein analyst Mark Moerdler opined that Salesforce is acquiring companies to hide the fact that its growth has slowed dramatically. According to Barron's blogger Tiernan Ray, in reiterating his earlier Underperform rating on the shares Moerdler said he believes Salesforce will find it tough to wrestle CRM market share from larger companies like Microsoft and Oracle.


Citing data from research firm IDC, Moerdler said growth of Salesforce's core CRM business fell from 40 percent in the first half of 2010 to 22 percent in 2011's first two quarters. Organic year-over-year growth has been dropping since 2011's third quarter, when it hit its peak of 31 percent, Moerdler said.


Other financial analysts have expressed reservations as well. While Moerdler mentioned competition at the enterprise end of the CRM market from the likes of Oracle, analysts from Trefis believe Salesforce faces pressure at the smaller end of the market from Zoho, which recently updated its software and announced more than 25,000 new users for its CRM application.


Writing for Forbes, the Trefis analysts say that while Salesforce applications offer more functionality, Zoho's lower pricing "could help Zoho attract small and medium-sized businesses that are much more cost-conscious than their enterprise counterparts."


The Motley Fool's Seth Jayson writes that too much of Salesforce.com's cash flow comes from what he calls "questionable sources," including changes in taxes payable, tax benefits from stock options and asset sales. Stating his belief that 10 percent of operations from such sources is acceptable, Jayson points out that nearly 39 percent of Salesforce's operating cash comes from these sources.


As reported on EnterpriseAppsToday, several analysts expressed reservations about Salesforce's future performance in late November after the company reported earnings for its fiscal fourth quarter - even though the company beat Wall Street expectations. Trip Chowdhry, managing director of Equity Research at Global Equities Research, said Salesforce's reliance on a multi-tenant technical architecture would likely negatively impact its ability to win business with large enterprises that are seeking more flexibility from cloud-based solutions. The article quoted Chowdhry:

... Google and Oracle have started to change the customer's expectations regarding the data with 'Data Liberate' and 'Data Portability' messages, which basically means that the customer should be able to bring in and take out data from the cloud system as and when they want. Salesforce.com may not be able to offer 'Data Liberate/Portability,' and if they do so, Salesforce.com's business could collapse immediately.

While Chowdry's prediction of immediate collapse seems unreasonably dire, ZDNet blogger Dennis Howlett also has raised some red flags concerning Salesforce's infrastructure, opining that it creates too much data integration work for IT organizations.

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Add Comment      Leave a comment on this blog post
Jan 9, 2012 8:52 PM Hugh Macken Hugh Macken  says:

Salesforce cannot afford to apply the bolt-on approach to the invaluable technology it purchased in the Radian6 acquisition. And it appears that is exactly what they have done which is a pity.

There is not a single enterprise CRM player in the marketplace that has actually come up with seamless, fully integrated social CRM. I think the issue with Salesforce right now is that they have failed to uncover for their customers the potential CRM gem that is Radian6. It may take some time to fully integrate but they need to come up with a vision for how to do so.

And fast.

Jan 13, 2012 1:10 PM vini vini  says:

I found your article usefull. i have found some more information regarding salesforce automation at http://www.buzzsolutions.com/

Jan 14, 2012 3:03 PM final expense final expense  says:

I think IDC research was a Good Step for this activity..Any ways your post is a Good source of information!

Apr 4, 2013 5:32 AM adambroun adambroun  says:
I think the issue with Salesforce right now is that they have failed to uncover for their customers the potential CRM gem that is Radian6. Reply
Oct 4, 2016 7:47 AM Sathya Sathya  says:
I found that the database that Salesforce uses will be helpful in digitizing and organizing company sale records. Thus, improving the overall organization of a company. Reply
Oct 10, 2016 6:23 AM Sakthiya Sakthiya  says:
SalesforceIQ is an out-of-the-box CRM solution that automatically tracks and analyzes the day-to-day interactions that drive professional relationships. You can easily connect with your Gmail or Exchange email and leverage Relationship Intelligence to sell smarter. Sales Cloud customers can also harness the power of Relationship Intelligence with the SalesforceIQ for Sales Cloud apps. Reply

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