Positive Outlook for Salesforce's CRM Share

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Salesforce.com ( CRM ) makes the majority of its revenues through subscription and support fees associated with its cloud-based software that provide customers with access to applications that can systematically record, store, and act upon business data. The company has grown its customer relationship management ( CRM ) market share over the past few years, from about 7% in 2006 to about 14% in 2010. We expect this number to continue to climb towards 24% by the end of our forecast period. Salesforce mainly competes with SAP ( SAP ), Oracle ( ORCL ), Microsoft ( MSFT ) and IBM ( IBM ) in the cloud-based software market.

We currently have a price estimate of $116 for CRM stock , roughly 15% below market price.

Demand for Cloud-Based Software Boosts Salesforce's CRM Share

The global on-demand CRM software market has grown from less than $500 million in 2005 to $2.3 billion in 2009, representing an average annual growth rate of 46%, compared to single-digit growth for the on-premise segment of the CRM software market. The favorable factors for this tremendous growth compared to on-premise segment are: a) speed and ease of implementation, b) low total cost of ownership and cost-effective benefits for customers, and c) ease of integration with existing applications.

Salesforce.com, which specializes in delivering CRM software on-demand, is expected to benefit more than its competitors as demand for cloud-based CRM software remains high. The majority of Salesforce's market share growth will likely come at the expense of SAP, whose share declined from 26% in 2006 to 22% in 2009.

Security concerns related to cloud services, however, do exist. Since data in cloud-based software resides outside the company, customers must have confidence in the security of data and the reliability of data storage.

Given the booming market for cloud-based CRM software and Salesforce.com being a significant beneficiary, we pose the following question:

What Percent of Salesforce's Stock Value Comes from Cloud-Based CRM Software?

A) 26%

B) 42%

C) 66%

D) 78%

See our full analysis and $116 price estimate for Salesforce.com stock



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CRM , IBM , MSFT , ORCL , SAP

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