Salesforce: 800-Pound Gorilla in Cloud

10/08/2015 8:00 am EST

Focus: STOCKS

Peter Staas

Managing Editor, Capitalist Times and Energy & Income Advisor

Founded in 1999, the software firm has emerged as the 800-pound gorilla in the cloud-computing space, notes Peter Staas, editor of Capitalist Times.

San Francisco-based Salesforce.com (CRM) was founded in 1999 by former Oracle (ORCL) executive Marc Benioff and three developers.

The company was the first pure-play software-as-a-service (SaaS) provider to achieve $1 billion in quarterly revenue and ranks as the world’s sixth-largest enterprise software firm.

Management has set its sights on becoming the first SaaS company to deliver $10 billion in annual revenue, a target that looks eminently achievable with the firm expected to eclipse $7 billion this year.

Salesforce.com specializes in cloud solutions that enable businesses to engage with their customers.

At this juncture, salesforce.com continues to invest heavily in research and development and mergers and acquisitions in an effort to innovate and broaden its capabilities.

These investments compress profit margins, but are essential to staying on top in this highly competitive industry and winning contracts from Global 500 companies.

In the fiscal second quarter ended July 31, 2015, Salesforce.com delivered a blowout quarter, headlined by $1.63 billion in sales (up 24%) and $1.52 billion in subscription revenue (up 23%).

Equally impressive, the company grew its operating margins by 170 basis points relative to year-ago levels and generated $304 million in cash flow.

These impressive results prompted management to increase its full-year revenue guidance to between $6.6 and $6.625 billion from the previous range of $6.52 billion to $6.55 billion. And this still looks conservative in light of recent trends.

Moreover, a partnership with Microsoft (MSFT) to integrate salesforce.com’s solutions with Office, Outlook, and Azure has prompted speculation that this agreement could be the precursor to a merger.

Reports also circulated earlier this year that listed Oracle as a potential suitor for salesforce.com.

Unfavorable currency exchange rates will remain a near-term headwind, but salesforce.com remains the preeminent play on software-as-a-service, with the vision and execution to take advantage of its considerable growth opportunities.

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