Salesforce Rises as New Customers Spur Sales, Profit Growth

May 20, 2011, 10:02 AM EDT By Aaron Ricadela

(Updates with opening shares in fifth paragraph.)

May 20 (Bloomberg) -- Salesforce.com Inc., the largest supplier of online customer-management software, rose as much as 8.1 percent after the company forecast fiscal second-quarter sales and profit that topped estimates.

Excluding some costs, earnings will be 29 cents to 30 cents a share, with sales of $526 million to $528 million, San Francisco-based Salesforce said yesterday in a statement. Analysts in a Bloomberg survey had estimated profit of 27 cents and revenue of $505.2 million for the period ending in July.

Salesforce, which sells cloud-computing applications that companies rent over the Web rather than install on their own computers, gained 5,400 customers in the quarter, for a total of 97,700. The company is benefiting from clients hiring more sales, marketing and customer-service workers. It’s also getting a boost from newer products, such as the Chatter social network for businesses and the Service Cloud customer-support software.

“They’ve really accelerated the product line,” said Brad Whitt, an analyst with Gleacher & Co. in Dallas. “You combine that with the general growth in cloud computing and you have a perfect environment.”

Salesforce rose $9.95, or 7.3 percent, to $145.76 at 9:34 a.m. in New York Stock Exchange composite trading, after touching $11.01. The shares had climbed 66 percent in the past year before today.

‘Crazy’ Growth

Billings, an indicator of future sales, rose 44 percent from a year earlier, compared with 36 percent in the fourth quarter, said Whitt, who recommends buying the shares. That allayed investors’ concerns that growth would slow, he said.

“The bears were looking for a deceleration and we got the exact opposite,” Whitt said. “We got another quarter of acceleration, which is crazy.”

Chief Executive Officer Marc Benioff said customers are buying more software as they put the economic slump in the rear- view mirror.

“What I see in the enterprise buying environment is the recession is behind these customers,” he said during a conference call with analysts yesterday. “We see a big buying environment out there.”

First-quarter net income fell to $530,000, or break-even on a per-share basis, from $17.7 million, or 13 cents, a year earlier. Higher spending on research, marketing and overhead expenses ate into profit. Excluding some items, earnings were 28 cents a share, beating the average analyst projection by 1 cent.

Hiring, Acquisitions

“The company continues its pattern of spending on growth,” Walter Pritchard, an analyst at Citigroup Inc. in San Francisco, said in a research note after the earnings report. That’s not surprising given the hiring of sales staff and acquisitions, said Pritchard, who has a hold rating on Salesforce shares.

Revenue rose 34 percent to $504.4 million last quarter. Analysts had expected $482.3 million on average.

On March 30, Salesforce agreed to buy Radian6 Technologies Inc. for about $340 million, adding software that tracks what’s being said about companies on the Web. Salesforce said the acquisition will boost its fiscal 2012 revenue by about $45 million to $50 million and reduce earnings per share, excluding some items, by about 11 cents.

--Editors: Lisa Rapaport, Stephen West

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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LinkedIn's Valuation May Look More Like Salesforce Than Facebook

May 18, 2011, 12:24 AM EDT By Ari Levy and Lee Spears

May 18 (Bloomberg) -- LinkedIn Corp., the first major U.S. social-media company to sell shares to the public, may deserve a valuation that more closely resembles those of business-software makers such as Salesforce.com Inc. than Facebook Inc.

While demand for LinkedIn shares prompted the company to increase the offering twice, the valuation of as much as $4.25 billion implies a multiple of 11.3 times projected annual sales. That compares with 13.8 for Facebook and 8.3 for Salesforce.com.

LinkedIn is often compared with social networks such as Facebook and Twitter Inc., which depend on advertising to consumers. Yet LinkedIn gets 70 percent of revenue from business subscriptions, a model that’s similar to Salesforce.com, SuccessFactors Inc. and NetSuite Inc. This dual appeal and faster growth means LinkedIn warrants a higher valuation than other business-software providers, said Brian Jacobs, general partner at Emergence Capital Partners.

“It’s got aspects of the business software world but it also has these aspects of the consumer world,” said Jacobs, who is based in San Mateo, California. “When you’ve got a product that millions of people love, that helps the stock price.” Emergence was an early investor in Salesforce and SuccessFactors.

LinkedIn shares are expected to price later today. The Mountain View, California-based company yesterday increased the range at which they’ll be sold to $42 to $45 apiece, from $32 to $35 as planned last week. LinkedIn is offering 7.84 million shares. At the high end, LinkedIn would raise as much as $405.7 million, if underwriters exercise an overallotment option.

Software Subscriptions

Some investors may purchase LinkedIn shares because they view it as a proxy for social-media companies led by Facebook that have put off IPOs to pursue growth outside the regulatory glare that’s directed at publicly traded companies.

Still, LinkedIn said in its prospectus that a “substantial portion” of revenue comes from a business that’s comparable to the software-as-a-service model. That’s where companies deliver software over the Internet, a market that is expected to climb 16 percent this year to $10.7 billion, according to Gartner Inc., a research firm in Stamford, Connecticut.

“The long-term holders of the stock will be the ones that evaluate it like an enterprise SaaS company versus the ones looking for pure momentum,” said Dave Whorton, founder of Tugboat Ventures in Palo Alto, California, and an early investor in SuccessFactors. “They will have good visibility into what the company is today and what it will be in the future without having to speculate.”

SaaS companies, including Salesforce, NetSuite and SuccessFactors, sell subscriptions over the Internet rather than long-term licenses like traditional business-software companies.

Salesforce is the largest supplier of customer-management software. SuccessFactors makes Web-based human resources software, and NetSuite provides online accounting programs.

Social Network Valuations

Facebook and Twitter, social-networking sites that give their services away, have higher private-market valuations than LinkedIn based on potential revenue from advertisers aiming to reach hundreds of millions of users. Facebook, the world’s largest social-networking site, is valued at $55 billion on secondary exchange SharesPost Inc., while micro-blogging service Twitter is valued at $6.2 billion.

Morgan Stanley, Bank of America Corp. and JPMorgan Chase & Co. are leading the offering. The stock is expected to begin trading tomorrow under the symbol LNKD on the New York Stock Exchange.

Personal Profiles

LinkedIn members use the site to search for jobs, recruit employees and find industry experts. While users can create personal profiles for free, the company introduced paid subscriptions in 2005, giving recruiters more access to job candidates and providing business professionals ways to communicate with one another.

The hiring solutions business, targeted at recruiters, accounted for about half of LinkedIn’s $93.9 million in first- quarter revenue, with 30 percent coming from ads. The company’s projected valuation of 11.3 times sales assumes first-quarter revenue is replicated over the next three quarters. LinkedIn’s net income rose 14 percent to $2.08 million the first quarter.

“It is one of the most exciting companies to go public in recent times,” said Jason Rosenthal, chief executive officer of Ning Inc., a social media company in Palo Alto. “They have built a $250 million-a-year revenue business that’s profitable and growing at a fast clip. Something like that deserves to be highly valued.”

Premium Business

Some analysts are skeptical. Ryan Hunter of Wedge Partners Corp. wrote in a report on May 16 that even at $3 billion, LinkedIn may be overvalued. LinkedIn had previously planned a sale that would have given it a valuation at that level.

Hunter sees a conflict between LinkedIn’s premium subscription business and its advertising business. To satisfy subscribers, the company may need to cut out ads to premium members, hurting revenue, he wrote. Rising competition may also force the company to eliminate premium fees to keep users, with Facebook as a looming threat.

“Facebook users have a substantially higher level of engagement than LNKD users,” wrote Hunter, who’s based in Greenwood Village, Colorado. “If Facebook creates a way for users to feel comfortable managing their professional and social networks on the same platform, we would expect LNKD’s value to its users (and shareholders) to rapidly decline.”

In the planned IPO, about 62 percent of the shares in the offering are being sold by LinkedIn, which said it plans to use the proceeds to fund existing operations and to expand the business, possibly including buying other companies or technologies.

The sellers of the other shares include a venture capital affiliate of Bain Capital LLC, McGraw-Hill Cos., Goldman Sachs Group Inc. and founder and Chairman Reid Hoffman, the prospectus shows. Venture capital backers Sequoia Capital, Greylock Partners and Bessemer Venture Partners aren’t selling shares, according to the filing.

--With assistance from Alex Sherman in New York and Douglas Macmillan in San Francisco. Editors: Jillian Ward, Tom Giles

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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