In an effort to further its expansion plans,
), recently announced its plans to offer $1 billion in
convertible senior notes to institutional investors through the
private placement route.
The proceeds generated through the issue would be partially
used to fund the company's prospective acquisitions and
investments in technology and will also support its capital
Salesforce.com has been adopted a hedging strategy for its
convertible note and warrant transactions, to prevent dilution of
its converted shares.
The company's financial health looks decent, as there is no
long term debt. The company is consistent with its capital
expenditure plans, which is evident from the fact that it has
incurred $50.5 million during the fourth quarter of 2013, and a
total capex of $175.6 million in the fiscal year 2013.
Moreover, going forward the company plans continue with its
capex plans, specially targeting its R&D for new product
development and to fund acquisitions.
Salesforce has also spent quite a bit on acquisitions, which
have always been the preferred route for picking up skilled and
qualified human resources. This fact is reflected in the
company's acquisition of Buddy Media Inc., last year, for $689
million. Buddy Media helps companies place advertisements on
) and Twitter Inc.
While acquisitions add value to a company's growing business,
they increase the headcount leading to higher operating expense.
We remain concerned about a sluggish business environment in
Europe, coupled with currency headwinds and not-so-encouraging
tech expenses that will have an impact on Salesforce's
The cloud market offers considerable opportunity for growth,
although growth prospects have been rationalized to a
considerable extent by the renewed focus of tech giants such as
) in the cloud space.
Considering the situation, it is hard to predict Salesforce's
success story, unless the company adopts other innovative
business strategies to fuel growth.
Although the revenue expectation by the company for the first
quarter of 2014 looks decent ($882 million to $887 million)
reflecting a yearly increase of 27.0% to 28.0%, Salesforce
projects a GAAP net loss per share in the range of 44 to 42 cents
per share, as the company expects operating expense to remain
Salesforce shares carry a Zacks Rank #3 (Hold).
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