Salesforce.com (NYSE:CRM) recently acquired DimDim for $31 million to bolster its Chatter application business.  Chatter is an application that provides social networking and real-time connection features for enterprises. While the Chatter collaboration network constitutes less than 4% of our estimate for Salesforce.com stock, the impact this product could have on other aspects of the business does provide real upside for the company. Salesforce.com could use Chatter to expand its enterprise customer base and up-sell its more valuable cloud-based products like its customer relationship management (CRM) or computing software. Salesforce.com competes with SAP (NYSE:SAP), Oracle (NASDAQ:ORCL), Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) in the CRM software market.
Our price estimate for Salesforce.com stock stands at $128, which is about 10% below market price. As Chatter individually generates less than 4% of our price estimate for the company, cloud-based customer software (63%) and cloud computing (26%) remain the largest value contributors for Salesforce.com.
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Chatter Should Help Salesforce.com Expand its Customer Base
Chatter is a cloud-based social collaboration application through which enterprise users can create profiles with professional information like personal contact data, area of expertise, and work history. Users can also share business documents and post status updates on individual documents and applications, as well as form discussion groups.
The advantage that Chatter has over other social networking sites like Facebook and Google (NASDAQ:GOOG) Buzz is that it provides additional security and privacy features. With the acquisition of DimDim, the company will likely add web-conferencing capabilities to the Chatter application. This would presumably be in the form of a browser-based web conferencing platform based on an open-source platform (and would not require the installation of any software).
This feature will enhance the draw of the Chatter application for enterprise users. Chatter has witnessed a rapid pace of adoption, with more than 10,000 customers signing up within a week of its June 2010 release.  This total spiked to 20,000 users within two months of the product’s launch. We estimate that the number of paying Chatter subscribers could increase from around 100,000 in 2010 to 2.5 million by the end of our forecast period.
However, as Chatter contributes less than 4% to our value estimate for Salesforce.com stock, the direct upside from additional Chatter subscribers is limited.
Upside Opportunity for Salesforce.com Stock
Chatter facilitates the expansion of Salesforce.com’s customer base, through which it can then up-sell its more valuable cloud-based products to enterprises. CRM software helps companies better manage customer data and information, enhancing service and increasing sales. Salesforce.com’s market share in the CRM market increased from an estimated 7% in 2006 to around 14% in 2010, and we anticipate a further increase towards 25% by the end of our forecast period.
There could be an upside of more than 12% to our estimate for Salesforce.com stock if its market share accelerates towards 30% by 2017 (vs. our 25% estimate), putting our number just ahead of market value.
The growth opportunity could be even greater if the company manages to up-sell its other cloud-based products like Force.com, a development platform for corporate IT departments and independent developers to build business applications.
Drag the trend lines in the charts above to see how various trends in Chatter subscribers and CRM market share could affect Salesforce.com’s stock value.Notes: