Salesforce.com (CRM) Raises SaaS Growth Concerns; Drags Down SaaS 20 Stock Index

Salesforce.com (CRM) delivered good news -- and bad news -- in its latest quarterly results, pulling down the SaaS 20 Stock Index 2.86 percent for the week ended August 22. It's the first time since July 11 that our software as a service index has posted a weekly decline.

None of our 20 index members climbed in a significant way for the week ended August 22. Major weekly decliners included:

  • Salesforce.com (CRM, -15.61%)
  • RightNow (RNOW, -8.99%)
  • Athenahealth Inc. (ATHN, -8.14%)
  • Kenexa Corp. (KNXA, -5.43%)
  • SuccessFactors Inc. (SFSF, -3.70%)
  • Google (GOOG, -3.63%)
  • Vocus Inc. (VOCS, -3.22%).
But the real SaaS story on the week was Salesforce.com. Here's why investors went running for the door.

On August 20, Salesforce.com announced "Record Fiscal Second Quarter Results" and declared that the firm was the "First Ever Software as a Service Company to Exceed $1 Billion Annual Revenue Run Rate." So far, so good, right?

Salesforce.com also said it delivered:
  • Record quarterly revenue of $263 million, up 49% year-over-year
  • Operating cash flow of $53 million, up 53% year-over-year
  • GAAP earnings per share up 167% year-over-year
  • A record 4,100 new customer additions

Now The Bad News

Pretty amazing stuff. But then the trouble started. As the Associated Press pointed out:
"The San Francisco-based company triggered the concerns late Wednesday by reporting sluggish growth in a key category that tracks its future revenue and maintaining a financial outlook that didn't deviate much from analyst projections."
The damage was done. Salesforce.com shares dropped sharply, and our SaaS 20 Stock Index is now down 9.88% for the year.

And here's the most interesting line from the Associated Press coverage:
"Although more large companies have been signing up for Salesforce's service, the company still focuses on many small- and medium-sized businesses that tend to curtail their spending on technology more quickly during tough times."

Time for MSPs to Worry?

Is the AP correct? Do small businesses really cut their IT spending more quickly -- including SaaS services? Conventional wisdom says small businesses will spend more on SaaS (and managed services...) than traditional IT during a weak economy.Either way, the votes are in from Wall Street: Investors are concerned about potentially slowing growth at Salesforce.com. And that's not good for the SaaS industry, since Salesforce.com is a bellwether stock.

Full disclosure: I've owned a few Salesforce.com shares for several years. I don't offer buy, sell or hold advice to readers. Rather, the point of the SaaS 20 Stock Index is to point out larger financial trends in the software as a service industry.



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