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Salesforce.com's Stock Drops 15%
Oppenheimer Blames Weaker-than-Expected Deferred Revenues that Hint of a "Meaningful Slowdown

Salesforce.com, the king of SaaS, reported Q2 earnings of $10 million, eight cents a share, nearly triple its results last year on revenues up 49% to $263.1 million.

The strong results Wednesday were roughly in line with expectations but the company’s stock dropped 15%. Oppenheimer blames weaker-than-expected deferred revenues that hint of a “meaningful slowdown.”

After posting negative sequential growth in Q1, deferred revenues were only up2% sequentially in Q2 to $479.5 million, which management attributed to timing issues.

Subscription billings grew 34% year-over-year to $249 million, but fell short of Oppenheimer’s expectations of $269 million.

Salesforce added 4,100 customers in the quarter, making its user base about 47,700.

It figures it can clear $273 million-$274 million this quarter and return about the same earnings it did in Q2. That means it could do $1.07 billion-$1.075 billion this year and earn 34 cents-35 cents.

Meanwhile, Salesforce has bought nine-year-old Chicago-based call center ISV InStranet for $31.5 million, which should pare five cents off this quarter’s net.

The company, whose operations are mostly in Paris, has no particular CRM or SaaS credentials, but it’s supposed to be good at self-service support compliments of a knowledge base that Salesforce intends integrating into its offering.

InStranet CEO Alex Dayon will become VP of product management at Salesforce.

Existing InStranet customers include Orange, Comcast and T-Mobile.

About Maureen O'Gara
Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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Is Salesforce.com the new ADP ... or the next Datapoint?
What will happen if blue sky clears the cloud?

***

This headline recently appeared in several places across the Web:

"Salesforce.com Passes $1 Billion Annual Revenue Mark"

THIS IS NOT TRUE. I don't know whether this material misstatement arose from media manipulation or an honest mistake, but it's genesis is most likely this 20 August 2008 press release...

"Salesforce.com Announces Record Fiscal Second Quarter Results"
http://tinyurl.com/5m5mea

...the subheading of which claims:

"First Ever Software as a Service Company to Exceed $1 Billion Annual Revenue Run Rate"

THIS IS NOT TRUE, EITHER. "Software as a Service" is marketing technospin for "service bureau". And payroll processing giant ADP--another service bureau--exceeded not only a "run rate" but actual annual revenues of $1 billion in 1985:

"The original outsourcer, Automatic Data Processing..."
http://tinyurl.com/56y5tx

Yes, SalesForce.com did report revenues of $263 million for their most recent quarter. And yes, they have raised "FY09 Revenue Guidance to $1.070 - $1.075 Billion". But NO, Salesforce.com has NOT passed the "$1 Billion Annual Revenue Mark". And despite Cheerleader/CEO Marc Benioff's effusive exuberance, some like Tiernan Ray do not share his enthusiasm:

"Salesforce's Deferred Revenue Debacle"
http://tinyurl.com/6oagtp

Perhaps in an effort to meet ever-inflating investor expectations--a fire they themselves have fueled--Mr. Ray notes that Wedbush Morgan analyst Michael Nemeroff "...thinks Salesforce may be pushing customers to sign more multi-year subscription contracts by lower prices, which could be hitting deferred revenue." And reading that, for me, brought on a disturbing case of Datapoint deja vu:

http://tinyurl.com/gk77r

"By the early 1980s, Datapoint was a Fortune 500 company. Under immense pressure to increase sales figures, its sales representatives encouraged customers to place large orders at the end of the fiscal year, permitting the company to count the orders as revenue even though the money had not been received and, in some instances, the sold equipment had not yet even been produced.... When some of the customers went broke before paying their bills, Datapoint had to reverse sales or record substantial bad debts, which caused the company to lose $800 million of its market capitalization in a matter of a few months in early 1982. The U.S. Securities and Exchange Commission (SEC) ordered Datapoint to stop this practice."

Is Salesforce.com the new ADP ... or the next Datapoint? Some say their business model is to take your watch and then bill you for the time. If so, what will happen to all those watches if blue sky clears the cloud?

Bruce Arnold, Web Design Miami Florida
http://www.PervasivePersuasion.com


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