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STOCK NEWS: Salesforce.com Shares Plunge on Growth Concerns

August 23, 2008

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From Yahoo News:

Salesforce.com stock plunges more than 18 percent on concern about decelerating growth

SAN FRANCISCO (AP) — Salesforce.com Inc.’s stock price plunged more than 18 percent Thursday amid fears that the Internet software service is headed for a slowdown as the flagging economy makes it more difficult to sign up new customers.

The San Francisco-based company triggered the concerns late Wednesday by reporting sluggish growth in a key category that tracks its future revenue and maintaining a financial outlook that didn’t deviate much from analyst projections.

Salesforce’s stock price hinges largely on rapid revenue growth, so any signs of a deceleration tends to unnerve investors. Shares fell 18.5 percent, or $12.05, to $53.25 in regular trading — the company’s lowest closing price in six months. The shares fell another 26 cents in the after-hours session.

Analysts were split on whether the sell-off was justified.

Some, like Deutsche Bank North America analyst Tom Ernst Jr., described it as an overreaction that created a buying opportunity for bargain hunters. “We see a strong reversal possible in the next six months,” Ernst advised in a research note.

Others, like Friedman, Billings, Ramsey analyst David Hilal, believe Salesforce is about to get hit with a double whammy — the weak economy and tougher competition from big software makers selling similar Internet services.

“Given the deceleration of the company’s growth, we believe that investors could reevaluate the valuation they are willing to pay for Salesforce.com,” Hilal wrote in a Thursday note. He maintained a $44 price target for Salesforce’s stock during the next 12 months.

Salesforce makes its money selling monthly subscriptions for customer sales programs that are accessed over Internet connections — a departure from the traditional method of selling prepackaged software that’s installed on individual office computers.

The concept, sometimes called “cloud computing,” is becoming increasingly popular, putting Salesforce on pace to post $1 billion in annual revenue for the first time in its nine-year history. The company’s early success has contributed to a nearly fivefold increase in its stock price since its initial public offering four years ago.

Although more large companies have been signing up for Salesforce’s service, the company still focuses on many small- and medium-sized businesses that tend to curtail their spending on technology more quickly during tough times.

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Written by CRM Help Desk · Filed Under Press Releases 

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