Fooling around, speculating on Salesforce

The interest in Salesforce.com is hardly limited to those dealing with CRM or even those merely intrigued by the whole Software as a Service phenomenon at large. The way that Salesforce stock and profits have been moving since 2006, Salesforce attracts quite a share of attention from investors as well.

The excellent investors’ website The Motley Fool posted an excellent analysis on Salesforce.com stock’s recent performance, in the format of a debate. On the “Salesforce.com Bull” side is Tom Taulli, while the multi-culti monikered Rick Aristotle Munarriz takes on the “Salesforce.com Bear.”

Taulli’s premise reckons that Salesforce’s “valuation may be high and its profits comparatively low, but this innovative firm’s growth isn’t likely to die down anytime soon.” Tualli makes particular note of the supposition that “Salesforce.com seems to have learned much from Siebel’s mistakes.”

In fact, Taulli sees Salesforce having a unique advantage in the stock market world, due to its very nature as a SaaS firm. Since Salesforce.com earns revenue from subscriptions, the result is a predictable recurring revenue stream, “a much-coveted asset in Wall Street’s eyes.”

Munarriz, meanwhile, urges readers “Don’t overpay for Salesforce.com. You’re better than that.”

(Great lead, to be sure, but what can this Fool possibly mean?)

Munarriz also presents a compelling argument while even admitting that Salesforce is a “great company” which is “growing its subscriber base at a healthy clip.”

What’s the problem, then? Well, “The share price is outlandishly high for a company with meager profitability, decelerating top-line growth, and a future of head-on collisions with wealthier software companies.”

Most damning in terms of attraction is Salesforce’s revenue growth. Sure, quarter one of fiscal year 2008 saw 55% revenue growth, but compare that to quarter four 2007, when growth was 58%. Or quarter four of 2006 with growth at 67%. Or quarter three of that fiscal year: 78% growth. You get the idea; Salesforce’s revenue growth rate has decreased nearly every quarter in the past nine.

Plus, writes Munarriz, “Salesforce earned a penny per share this past quarter. The company is guiding investors to expect a profit of $0.07 to $0.09 per share for all of fiscal 2008.”

Be sure to check out the Motley Fool’s “Dueling Fools” series. Unless you can’t handle a little confusion, that is…