A number of IT industry observers have suggested that software-as-a-service companies will weather the economic downturn better than traditional on-premise software vendors, one of the predictions I shared in my recent post on which tech companies will get hammered the hardest in the financial meltdown. And a few short months ago, albeit before the credit crisis, I shared optimistic CRM spending forecasts from several analysts.
So SaaS darling Salesforce.com should be sitting pretty now, right?
Nope. The company's stock is falling after several financial analysts lowered their ratings on the CRM vendor's stock, reports Barron's Online. The analysts seemingly were spooked after earnings warnings from both SAP and fellow SaaS vendor RightNow Technologies.
UBS analyst Heather Bellini took special note of RightNow, writing that its lengthening sales cycles and sluggish cash collections don't bode well for Salesforce, which has a similar business model. Analysts also are bothered by a client roster heavy on financial services companies, including Citigroup and Lehman Bros. According to a Dow Jones report on CNNMoney.com, Bernstein Research analyst Charles Di Bona cited Salesforce's and fellow SaaS vendor NetSuite's reliance on SMBs. SAP mentioned a soft SMB market in its September sales report. Salesforce gets two-thirds of its revenue and NetSuite gets all of its revenue from smaller companies, believes Di Bona.
As Schaeffer's Research's Jocelynn Drake points out, Salesforce's stock has been dropping since it hit a high of $75.21 in late June. Its value has declined 47 percent since then and more than 35 percent on a year-to-date basis. In another troubling trend, the stock has been especially popular among short sellers, writes Drake.