SAN FRANCISCO -- Look for Salesforce.com's (CRM) earnings report late Wednesday to fuel rampant speculation that the company will be sold this year.That figures to happen, regardless of whether the company's fourth-quarter growth beats the Street or disappoints. As unsubstantiated rumors began to swirl this month that Salesforce had put itself on the block, the stock rose nearly 8% Feb. 11 and has remained above its Feb. 8 close of $50.87. According to the central rumor, based on one thin report blogged on Feb. 9 by Tom Foremski of SiliconValleyWatcher.com, CEO Marc Benioff has grown bored and will sell from a position of strength. But such speculation has circulated for a year, with no deals appearing. The biggest issue is that the most likely buyers mentioned are probably not interested -- yet. A spokesman for the company declined comment on the speculation. "There is a rumor on the street that Marc Benioff, who came from Oracle ( ORCL), is tiring," said Ken Bender, managing director of the Software Equity Group, which tracks companies in the software-as-a-service (SaaS) market. "Is he bored? Quite possibly. Could Salesforce.com garner a huge purchase price? Probably, and it deserves one." Analysts polled by Thomson Financial are expecting fourth-quarter top-line growth of 45% to $209.2 million and net income of $5.6 million, or 4 cents a share. In 2009, Salesforce is expected to produce EPS of 32 cents on revenue of $1.03 billion. The stock closed Tuesday at $52.76, trading at 167 times 2009 expected earnings. Salesforce hit its one year high of $65.52 Dec. 21. Given the company's success in a market where the big, established vendors have done little more than dabble, it would be surprising if offers hadn't already been made. And Benioff could ask top dollar. The price he reputedly is seeking is $75 a share, which would be a mere 14% premium to the stock's most recent high, rendering the entire rumor suspect. Calling the rumor unsubstantiated, Benchmark Capital analyst Mark Schappel said, "I'm not sure I totally buy it. I think $75 is low. I think
The potential bidding price of Salesforce is inconsequential to a huge software company like Oracle or Microsoft, Bender said. And Salesforce's earnings before interest, taxes, depreciation and amortization (EBITDA) margin was a stellar 28.9% in November on a trailing 12-months basis, compared to an EBITDA margin of 11.2% for the software industry at large, and 7.5% for SaaS companies, he said. SaaS companies are slower to arrive at profitability, but yield higher margins than traditional "shrink-wrap" software providers as they mature, Bender said. Salesforce's margin should make it an attractive buyout candidate. To an acquirer, Salesforce "is going to be accretive and very, very profitable," Bender noted. Software Equity Group does not have a stake in any SaaS company discussed or trade in their securities. "The behemoths have struggled mightily to penetrate" the market for small and medium enterprises (SME), to little effect, Bender said. Software as a service is the most viable way to sell to such businesses. Although this market is the "holy grail" to large software developers, small and medium-sized businesses have not responded to them, he added. Software Equity Group's SaaS index lists 18 companies. These 18 grew revenue at 42.5% in 2007, compared to top-line growth for all public companies of 14.4%, according to Software Equity Group. If Benioff is looking to sell, now would be the time, as Salesforce's trajectory begins to taper off under the rule of large numbers. The company's revenue grew 83.5% in 2005, 75% in 2006 and likely grew 49% for all of 2007, Bender said. "That's still phenomenally more successful than the software industry at large," Bender said.