Welcome to Week 20 of the Big Idea Portfolio. Only salesforce.com (NYSE: CRM ) rallied last week, mostly on the strength of a good earnings report and forecast. Apple and Rackspace Hosting led the decliners, each down close to 9%. Details on these companies and more in a minute. First, let's dig into the numbers:
|S&P 500 SPDR||$127.15**||$129.74||2.04%|
Source: Yahoo! Finance.
* Tracking began at market close on Jan. 6, 2012.
** Adjusted for dividends and other returns of capital.
My scorecard's average return fell 332 basis points, yet that easily outperformed the S&P 500, which fell 461 basis points. The message? Sometimes you win by not losing. And, one outperformer can go a long way toward beating the market.
This time, salesforce.com did the heavy lifting. First-quarter revenue jumped 38% to $695 million while adjusted earnings improved to $0.37 a share. Analysts had been expecting just $0.34 a share of profit. More impressively, deferred revenue soared 46% to $1.33 billion, though a fair portion of that was due to changing invoice terms. Unbilled deferred revenue also improved to $2.7 billion as CEO Marc Benioff teased the prospect that salesforce.com could become a $3 billion business this year.
"After becoming the first enterprise software company to achieve the $1 billion run rate, the $2 billion run rate, now we're guiding to $3 billion for the year, fiscal year '13," Benioff said in prepared remarks made during a conference call with analysts. "That's an amazing new milestone for our industry."
As predicted, investors appreciated the optimism, bidding up the stock more than 11% at one point on the higher guidance. Salesforce.com now expects $0.38 to $0.39 in adjusted earnings for the current quarter and $1.60 to $1.63 in Non-GAAP profit for the full year. Friedman, Billings, & Ramsey were among the analysts raising their 12-month price targets on the news.
Unfortunately, enthusiasm for salesforce.com couldn't overcome a broad-market sell-off that hurt Apple and Rackspace more than most. Yet neither stock disappointed nearly so much as Facebook (NYSE: FB ) , which went public at $38 a share, soared briefly, fell, and then spent much of the rest of Friday's trading around breakeven. The stock is down more than 11% today as I write this.
Skeptics will say that banker support present on IPO day has since gone missing, and that Facebook's $100 billion valuation is being exposed as a farce. Maybe. The more likely scenario, I think, is that short sellers have finally entered the stock. Selling pressure should continue so long as there's bearish enthusiasm for shares of the social network.
Meanwhile, the bigger story could be how social media as a category has failed to hold up in the wake of Facebook's debut. Both Zynga (Nasdaq: ZNGA ) and Renren (NYSE: RENN ) fell more than 10% on Friday and are still trading lower today, despite a sharp uptrend in the tech-heavy Nasdaq. Investors are behaving as if they don't believe these names will support the sort of sustainable growth implied by their rich valuations.
The week that was
Did I say two straight weeks of losses? Make it three weeks. The Dow Jones Industrial Average fell 3.52%, more than doubling last week's loss, as the S&P 500 declined 4.3%. But that's nothing compared with the Nasdaq (INDEX: ^IXIC ) , which fell 5.28% despite Facebook's debut. The small-cap Russell 2000 led the laggards with 5.42% decline, CNBC reports.
The week offered little in the way of good news. Europe, in particular, spooked investors when Moody's cut the long-term debt and deposit ratings on 16 Spanish banks. Woes persist at JPMorgan Chase as well, with reported trading losses now topping $3 billion. Expect more market volatility while these and other issues are worked out.
See you back here next weekend for more tech-stock talk. And remember to check out the Fool's latest special report -- "Forget Facebook -- Here's the Tech IPO You Should Be Buying" -- and add the Big Idea portfolio stocks to your Foolish Watchlist for ongoing, up-to-the-minute coverage. Both the report and the Watchlist are 100% free to use: