More Doubts on Salesforce Emerge

A lot of these gel with what we have been saying for a while. It all boils down to the fact Salesforce.com (NASDAQ:CRM) is doing everything it can to give the appearance things are all rosy when in fact cracks are emerging…..big ones. No one is saying anything melodramatic like “they are going under”, clearly they are not. What is being said is they are using accounting games to boost current results and subtly changed bonus metrics for execs so they could keep the cash flowing to themselves all the while exercising options 2-3 years early and dumping virtually every share.

Organic growth is slowing dramatically and the small deals they are doing simply can’t continue to make up the difference. Soon, (I am betting current Q or next) this will show in results and the stock will crater. Again, I am not saying they are worth nothing, I am saying they are worth a fraction of the $100 they hover at now.

IT Business Edge

Wall Street analysts usually welcome news of acquisitions, seeing them as a sign that companies are gearing up their growth plans. $CRM giant Salesforce.com has been gobbling up smaller companies for the past year, among them platform-as-a-service provider Heroku, email contact management startup Etacts, human capital management provider Rypple, collaboration specialist Dimdim, and Manymoon, Radian6, Assistly and Model Metrics, all of which offer solutions that fall under the broad “social” category. Salesforce last month introduced a solution based on Radian6 technology called the Radian6 Social Marketing Cloud.

But Salesforce’s stock took a beating earlier this week after Sanford Bernstein analyst Mark Moerdler opined that Salesforce is acquiring companies to hide the fact that its growth has slowed dramatically. According to Barron’s blogger Tiernan Ray, in reiterating his earlier Underperform rating on the shares Moerdler said he believes Salesforce will find it tough to wrestle CRM market share from larger companies like Microsoft $MSFT and Oracle $ORCL.

Citing data from research firm IDC, Moerdler said growth of Salesforce’s core CRM business fell from 40 percent in the first half of 2010 to 22 percent in 2011′s first two quarters. Organic year-over-year growth has been dropping since 2011′s third quarter, when it hit its peak of 31 percent, Moerdler said.

Other financial analysts have expressed reservations as well. While Moerdler mentioned competition at the enterprise end of the CRM market from the likes of Oracle, analysts from Trefis believe Salesforce faces pressure at the smaller end of the market from Zoho, which recently updated its software and announced more than 25,000 new users for its CRM application.

Writing for Forbes, the Trefis analysts say that while Salesforce applications offer more functionality, Zoho’s lower pricing “could help Zoho attract small and medium-sized businesses that are much more cost-conscious than their enterprise counterparts.”

The Motley Fool’s Seth Jayson writes that too much of Salesforce.com’s cash flow comes from what he calls “questionable sources,” including changes in taxes payable, tax benefits from stock options and asset sales. Stating his belief that 10 percent of operations from such sources is acceptable, Jayson points out that nearly 39 percent of Salesforce’s operating cash comes from these sources.

As reported on EnterpriseAppsToday, several analysts expressed reservations about Salesforce’s future performance in late November after the company reported earnings for its fiscal fourth quarter — even though the company beat Wall Street expectations. Trip Chowdhry, managing director of Equity Research at Global Equities Research, said Salesforce’s reliance on a multi-tenant technical architecture would likely negatively impact its ability to win business with large enterprises that are seeking more flexibility from cloud-based solutions. The article quoted Chowdhry:

… Google $GOOG and Oracle $ORCL have started to change the customer’s expectations regarding the data with ‘Data Liberate’ and ‘Data Portability’ messages, which basically means that the customer should be able to bring in and take out data from the cloud system as and when they want. Salesforce.com may not be able to offer ‘Data Liberate/Portability,’ and if they do so, Salesforce.com’s business could collapse immediately.

While Chowdry’s prediction of immediate collapse seems unreasonably dire, ZDNet blogger Dennis Howlett also has raised some red flags concerning Salesforce’s infrastructure, opining that it creates too much data integration work for IT organizations.

This article was originally published by Todd Sullivan at ValuePlays. Join our contributor network and submit a post powered by data and interactive charts.