Salesforce.com and Deutsche Telekom: The Europe Expansion Plan

Learn how the recent partnership between Salesforce.com and Deutsche Telekom benefits both companies, and what this implies for top competitor SAP AG.

Jul 11, 2014 at 10:45AM

Aware of the ongoing trend of companies transitioning their IT budgets to the cloud, Salesforce.com (NYSE:CRM) aims to grow significantly by targeting the European region. The company plans to open a data center in United Kingdom this year, along with others in Germany and France in 2015. Recently, the leading CRM software and cloud computing company announced its partnership with German telecommunications giant, Deutsche Telekom AG (NASDAQOTH:DTEGF).

In this new alliance, Salesforce.com appoints its European partner's corporate customers unit, called T-Systems, as the reseller of its CRM software in Austria, Germany, and Switzerland -- which form the DACH region. Also, Deutsche Telekom will be the data center provider for Salesforce.com's upcoming establishment in Germany. As it invests in cloud infrastructure, the German organization plans to work with its new ally to expand its own cost-effective cloud services. Considering how Salesforce.com looks to increase its market share in Europe, SAP AG (NYSE:SAP) might see a threatening situation to its established leadership in enterprise software.

Salesforce.com's entrance to Europe
European organizations have worried constantly about storing their information in data centers located in the United States, due to the controversy of spying and other security breaches. For that reason, Salesforce.com announced months ago that it would establish data centers in Europe, satisfying a significant demand in the market. With Deutsche Telekom as a partner, Salesforce.com will be able to offer its solutions through the Telekom Cloud, assuring security to its customers.

Also, the new partnership could lead Salesforce.com to have a successful massive launch in Europe. Taking into account the vast reach and popularity of Deutsche Telekom in the DACH region, the new alliance seems like a sound initiative for Salesforce.com to grow its popularity in the market. Given that the American company spends heavily in its marketing and sales crew, it could be forming partnerships with renowned corporations in order to reduce these high costs -- which could also partly explain its recent alliance with Philips.

Propelling T-Systems restructuring plan
In regards to Deutsche Telekom, it plans to improve its T-Systems unit with Salesforce.com's help. In that manner, it can expand its cloud portfolio with cost-effective services mainly targeted to small and medium sized enterprises. Currently, the company has a well-established cloud business in Germany, and has been awarded top marks by research firm Experton. In its latest quarter, Deutsche Telekom reported a revenue decrease of 6.7% year-over-year for T-Systems due to restructuring and repositioning costs. For that matter, its partnership with Salesforce.com might alleviate these expenses, and move its 2015 restructuring plan forward. 

Maintaining revenue growth
Salesforce.com shows consistent and significant revenue growth over the past years. At the moment, its success with European customers is evidenced by its 41% revenue growth in its full fiscal year 2014 in Europe. Moreover, the company's fiscal year 2015 guidance projects that it will garner around $5.3 billion of total annual revenue, a 30% increase year-over-year. 

As Salesforce.com reports constant net losses, investors could still expect its stock price to increase through its sustained revenue growth. With Deutsche Telekom as a reseller of its platform, and its current growth in Europe; the company might see a greater amount of sales upon its entrance to the region. Moreover, the German organization could potentially revert revenue declines for T-Systems in future years, as it improves its portfolio and follows its restructuring plan with Salesforce.com's help.

Competing with SAP AG
SAP is currently in a dominant position in the German enterprise software market. In its most recent quarter, the company generated revenue of about $5.1 billion, which fell short of analysts expectations along with its operating profit. However, its cloud subscriptions revenue grew considerably by 38%. It also reported 36 million users in the cloud.

In addition, it shows positive results for its relatively new services. Its real-time business platform launched in 2011, SAP HANA, reached 3,200 customers in total, and SAP Business Suite, released a year ago, almost got to 1,000 customers. Lastly, the organization shows consistent net profit, which makes it much less of a volatile stock compared to Salesforce.com.

Final foolish takeaway
Salesforce.com and Deutsche Telekom are forming a partnership that will allow the former to establish itself successfully in the DACH region (composed of Germany, Austria, and Switzerland). Although many investors worry about Salesforce.com's net losses, its expansion in Europe could still increase the price of its stock thanks to the potential, significant revenue growth.

At the same time, Salesforce.com will provide expert help to its German partner. This could propel Deutsche Telekom's plan to restructure T-Systems and improve its cloud service portfolio, which could lead to increase in sales in future years. Still, both companies should be aware of the leading position of SAP in the market, as it is growing its business considerably, increasing sales for its product and services while generating profit.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers