salesforce.com, Failed Coup or Poor Results?

February 6, 2009 by Douglas A. McIntyre

Burning_money_pic_2If this was during good times, we’d be under the impression that there was a failed coup inside salesforce.com, Inc. (NYSE: CRM).  Steve Cakebread, the company’s president & chief strategist, has resigned.  And there are two other departures as well.  It seems that the economy may be catching up to salesforce.com faster than was expected late last year.

salesforce.com’sprimary product in customer relationship management software isdelivered to companies on what it coined as an SaaS basis, orsoftware-as-a-service.  It charges customers on a ‘pay as you go’ basisrather than up-front enterprise fee per seat.

With an effective date of February 1, Cakebread hasresigned as President and Chief Strategy Officer.The reason is "to pursue other professional opportunities."  He joinedthe company in May 2002 and served as the Chief Financial Officer forsix years, and he then tbecame President &Chief Strategy Officer in 2008. The resignation is for personal reasonsand does not involve any controversy or disagreement with the Company.

Under the terms of the his seperation agreement, Cakebread will receive a severance payment of $200,000.00, a fullpayment of an annual bonus for the 2009 fiscal year ended January 31,2009 of $225,000.00, and group health care coverage from March 1, 2009through July 1, 2009.  Cakebread has agreed to a customary release ofany and all claims.

Reuters also reported yesterday that people familiar with the situationsaid the company had also laid off Gary Hanna, executive vice presidentfor enterprise sales, and another executive vice president.

This company is mostly identified with the Chairman & CEO Marc Benioff by Wall Street.

What does this all tell you about the growth inside the company duringthis economy?  It seems that the CRM business is not going to be asresistant to economic trends as bulls had hoped.

Shares of salesforce.com have been punished.  After an 8% drop to$28.21 today, the stock is way off of the highs of $75.21 last year.So it is cheap based on a stock sell-off, but what about themultiples?

Analysts expect the January 2009 fiscal numbers to be $0.31 EPS and$1.07 billion in revenue.  For Fiscal January-2010, those estimatesare $0.51 EPS and $1.33 billion.  With a share price of $28.20 and amarket cap of $3.45 billion, this trades at over 50-times next yearearnings targets and close to 2.6-times revenue.

How many companies, even the rapidly growing ones, are calling for EPSgrowth of 60% and revenue growth of 24% in the current climate?  Thatdoes not mean that some companies cannot achieve those growth rates.But the number of companies that can achieve that are probably few andfar between.  It sounds a lot like the numbers just came downsignificantly without an official announcement from the company. 

Jon C. Ogg
February 6, 2009