Salesforce.com Going Strong

Salesforce.com (NYSE: CRM  ) is growing at a rapid rate. In the first quarter, the company reported an 84% increase in revenues to $64.2 million. This was also an 18% sequential increase. Net income surged from $437,000 to $4.4 million, and cash flows from operations increased 169% or $17.9 million. The company added roughly 1,600 customers, representing 40,000 paid subscribers. In all, the company has 15,500 customers and 267,000 paid subscribers.

Why is Salesforce.com enjoying such growth when many other enterprise software companies are ailing? First, the software is easy-to-use and powerful (in fact, I'm a user of it myself). Second, the company has been smart in making its solutions customizable. That is, the solutions adapt to the needs of a business -- not the other way around.

The software is delivered on demand, and customers access the applications via their Web browser. Thus, any updates are done automatically, so companies save money on servers, IT resources, and other infrastructure investments that would otherwise be required to run the software and install updates.

Finally, Salesforce.com's business model is quite different from that of traditional software providers, which have large upfront costs and ongoing maintenance fees. Salesforce.com charges for its software on a subscription basis. This makes it easier for a company to afford a CRM solution.

The momentum is clearly accelerating, as Salesforce.com upped its guidance. The company expects full-year 2006 earnings per share of $0.11 to $0.14, as well as revenues of $297 million to $302 million.

For quite some time, Salesforce.com CEO Marc Benioff has predicted "the end of software." Of course, he thinks his on-demand model will make this prediction come true. That may be an exaggeration, but so far, it seems to be resulting in strong growth in an industry that is otherwise stalled.

Fool contributor TomTaulli does not own shares mentioned in this article.


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