This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Salesforce.com (NYSE:CRM)
Below are key drivers of Salesforce.com's value that present opportunities for upside or downside to the current Trefis price estimate for Salesforce.com:
Cloud-Based Customer Relationship Management (CRM) Software
- Salesforce.com's share in CRM market: Salesforce.com CRM market share has increased at a fast rate in the past from around 10.5% in 2008 to around 15.4% in 2012 and we expect it to continue to increase to reach to around 20% by the end of Trefis forecast period. We believe that Salesforce.com will benefit from the fast growth of cloud computing CRM market. The favorable factors for this tremendous growth are speed and ease of implementation and low total cost of ownership. There could be an upside of about 15% to our estimate for Salesforce.com stock if its market share increases at a faster rate to reach 25% by the end of Trefis forecast period. On the other hand, there could be a downside of around 10% to our estimate for Salesforce.com stock if its market share increases at a slower rate to reach 15% by the end of Trefis forecast period.
Cloud-Based Software Revenue
- Salesforce.com share in Cloud computing market: The overall cloud-based software market is expected to grow at a fast rate. Salesforce.com continues to grow in this market organically, as well as through the acquisition route. It has launched a series of new cloud-based software applications like Chatter, Database.com, Data.com, Do.com, Desk.com, Heroku. It also generates revenues from its application platform Force.com and marketplace AppExchange. We expect Salesforce.com's revenue from cloud-based software to increase to $2.9 billion by the end of the forecast period, from around $0.8 billion in 2012. There could be an upside of 15% to our estimate for Salesforce.com stock if its revenue from other cloud software revenue reaches $5 billion by the end of the forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Salesforce.com at the top of the page.
Salesforce.com offers customer relationship management (CRM) software, including sales and customer service software, as well as other cloud-based application, database and platform software to businesses. CRM software helps companies better manage customer data and information, which helps those companies to better serve their customers and increase sales. Salesforce.com's software is delivered remotely to its customers over the internet (from the "cloud"), making Salesforce.com one of the leading companies in the cloud-software space.
Cloud based CRM software
Salesforce.com uses cloud-based software to give its customers access to online software, with minor implementation and no on-premise installation or maintenance of software or physical servers.
Salesforce.com makes money mainly through subscription and support fees associated with its customers using Salesforce's applications. These applications give Salesforce.com's customers access to systems which can systematically record, store, and act upon business data. These applications are used to optimize different aspects of a company's business including sales, marketing, partnerships and customer service. The company’s CRM services primarily focus on sales-force automation, marketing automation, and customer service and support automation. In addition, it provides consulting and implementation services and training.
Salesforce.com is heavily invested in cloud-based application services and derived around 94% of its 2012 revenue from subscription and support fees associated with cloud services.
Salesforce.com has experienced a significant rise in customers in the last couple of years. Its customers are relatively evenly split across small business (fewer than 200 employees), medium sized businesses (200 employees to $1 billion in revenue) and large businesses (greater than $1 billion in revenues).
Other cloud based software
In addition to cloud-based CRM software, Salesforce has a long-term opportunity to deliver other types of cloud-based software and services as corporate IT departments leverage cloud-based software instead of investing in additional hardware and on-premise software. The cloud computing market consists of Software as a service (SaaS), Platform as a service (PaaS) and Infrastructure as a service (IaaS).
Salesforce.com offers Force.com, which is the development platform and infrastructure for corporates' IT departments and independent developers to build business applications. It also offers AppExchange, which is an online directory that provides customers a way to browse, test-drive, share and install applications developed on Force.com platform.
It has also launched a series of other cloud based applications and services, including Chatter, an enterprise social network; Database.com, a cloud-based database offering; Data.com, a leads platform for sales professionals; Do.com, a task management app; Desk.com, a social customer support service, and Heroku, a Ruby application platform. It also launched the Radian6 Social Marketing cloud recently.
Cloud-Based Customer Software is Salesforce.com's core and most valuable business. The division's value depends heavily on three main factors:
1. Growth in the Size of the CRM Software Market
The CRM software market consists of two types of software: (1) On-Premise Software, (2) On-Demand (Cloud-Based) Software.
- On-Premise Software is the traditional enterprise software model, which requires each customer to install, configure, manage and maintain the software on their in-house hardware.
On-Demand (Cloud-Based) Software is delivered remotely over the internet on an as-needed basis with little or no implementation services required and without the need to install and manage third-party software in-house.
The overall CRM market has grown from $9.2 billion in 2008 to around $13.4 billion in 2012. We expect this market to keep growing.
2. Salesforce.com's Growing Share in the CRM Software Market
Salesforce.com has been increasing its share in the CRM market at a consistent rate for the last few years. It's market share has increased from around 10.5% in 2008 to 15% in 2012. This growth is attributable in large part to the shift from on-premise CRM software to cloud-based CRM software which benefits Salesforce.com.
3. Maintaining High Gross Margins
Salesforce.com has maintained high gross margins of around 87% through the last few years, and we expect it to remain at relatively high levels going forward.
On-going Shift to Software-as-a-Service (SaaS)
Software as a Service (SaaS) is a subscription-based service where companies can access software online and pay only for the functionality utilized. This is oftentimes a cost effective solution for companies, and suits small and medium enterprises more, as they have low IT budgets. In this model the software is generally hosted on the service provider's servers from where it can be easily accessed by users. As such, businesses can save heavily on costs and time involved with purchase and implementation of expensive software. We forecast an increasing trend towards "Software as a Service" adoption.
Corporate Confidence in Data Security for Software-as-a-Service Applications Important
Companies are sometimes reluctant to use cloud services over data security concerns. Since data in cloud-based software resides outside the company, the company must have confidence in the security of the data and the reliability of the data storage. For example, according to GTRA research, 75% of large companies feared cloud computing security breaches.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics