The San Francisco-based on-demand software company's stock plunged more than 16% to $54.52 in recent trading,
Several red flags were raised during Wednesday's conference call, including potentially slowing bookings growth and rising marketing expenses.
Salesforce doesn't disclose bookings data, but deferred revenue, which grew at 49% year over year during the second quarter and only 2% consecutively, gives some indication of new bookings. The growth rate for deferred revenue for the same quarter last year was 59%.
UBS analyst Heather Bellini wrote in a note Thursday that slowing deferred revenue would likely cause shares to pull back 5% to 10%. The firm makes a market in shares of Salesforce.
The slower ramp-up in deferred revenue could indicate weak bookings, noted Wedbush Morgan analyst Michael B. Nemeroff. Wedbush makes a market in shares of Salesforce.
Nemeroff attributed slower deferred growth to the possibility that Salesforce is "enticing customers to sign more multi-year deals by charging a lower price
per subscriber than in the past." His one-year price target on the stock is $61.
on-demand customer-relationship management software may be chipping away at Salesforce's growth rate.
Oracle, in particular, may be putting the screws to Salesforce's dominance in the CRM niche, according to JMP Securities analyst Patrick Walravens. His research "suggests that Oracle is ramping its CRM On-Demand sales efforts dramatically in certain regions." Sources are seeing Oracle in a much higher percentage of competitive sales situations than a year ago, he noted.
JMP does not make a market in Salesforce.
Technology Business Research analyst Melissa Grady also raised concerns over Salesforce's escalating sales and marketing expenses as the company expands internationally.
Sales and marketing expenses grew 45.6% year over year for the first half of 2008, to $253.5 million, or 49.6% of revenue.
"Sales and market expenses are the largest drain on the company's resources, increasing almost inline with revenue growth," Grady wrote in a note Thursday. Headcount additions to the global sales team are largely responsible for the increase in expenses in the second quarter, she added.
Salesforce added 440 employees during the first half of 2008, bringing the total to 3,050, nearly double the hiring rate for the first half of last year.