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Salesforce.com: Great Growth, Now 'Show Me the Money'

NEW YORK ( TheStreet) -- "Shares of Salesforce.com.com (CRM - Get Report) are just too expensive. With rivals such as Oracle (ORCL - Get Report), Microsoft (MSFT - Get Report) and SAP (SAP - Get Report) trying to put the company out of business, it's hard to see how Salesforce.com can ever grow into its enormous valuation. Not only does the company lack operating leverage, it also has no profits."

For years, this has been a popular bear argument against Salesforce.com -- except the company has not cared to listen. Instead, each quarter, Salesforce.com has taken the "us against the world" approach by seeking to prove doubters wrong with its eye-opening growth performances.

Remarkably, while one might expect standing ovations for these accomplishments, instead bears contend "I bet you can't do it again." In fairness, the company does deserve credit for its ability to grow revenue -- particularly in such tough enterprise spending environments as we've seen. On the other hand, it's hard to argue with analysts who wish to see more growth where it matters most -- on the bottom line.

Solid Q3, But Bears Are Still Hanging Around

Salesforce.com had an impressive quarter, one the company considered "record-breaking." This is despite the fact that 35% revenue growth (only) met expectations.

The company earned 33 cents per share on revenue of $788 million -- helped by better than expected showing in the company's services support and subscription business which grew 35% year-over-year.

Equally impressive was Salesforce.com's 20% year-over-year growth in operating income, which surged 20% as the company continues to grow various business segments such as professional services at an annual rate of more than 30%. So, what's the problem?

While that level of growth speaks to excellent execution, it means nothing if it doesn't translate to profits. In other words, what's the point? This has been an area where the company continues to struggle. During the quarter, gross margin shed more than one point. Likewise, operating margins dropped by 500 basis points.

Although the company saw an 18% jump in operating income, analysts were not pleased that margins declined year-over-year by 1.5 points and dropped by almost 3 points sequentially. This was an area where the company attributed the poor showing to its acquisition of Buddy Media earlier this year.

Moving Forward

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