Foolish Forecast: Will the Street Be Sweet to salesforce?

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salesforce.com (NYSE: CRM) is all geared up to report fiscal third-quarter 2009 earnings. This provider of software-as-a-service to everyone from Apple (Nasdaq: AAPL) to Xactly Corp. received a rude reception when it last published earnings. Will Wall Street be more polite tomorrow?

What analysts say:

• Buy, sell or waffle? Thirty-two analysts give salesforce 16 buy ratings, 13 holds, and three sells.
• Revenues. On average, they expect to see 42% sales growth, to $273.6 million.
• Earnings. Profits are similarly expected to grow 40%, to $0.07 per share.

What management says:
Forty percent -- pretty, impressive, huh? Even Google (Nasdaq: GOOG) doesn't do that anymore. And yet, when last we heard from salesforce, the company was reporting 49% sales growth and more than 100% growth in profits for fiscal Q2.

So it would appear that analysts are expecting a slowdown here -- as is salesforce itself. The guidance we got three months ago suggested revenue numbers bracketing Wall Street's estimate, along with pro forma profits of $0.08 or $0.09 (which is $0.06 or $0.07 in GAAP.)

What management does:
Today, salesforce boasts gross margins higher than competitor NetSuite (NYSE: N). Its operating margins are firmly ensconced in the mid-single digits, and rising fast.

Margins	4/07	7/07	10/07	1/08	4/08	7/08
Gross	75.9%	76.2%	76.5%	77.1%	78.0%	78.7%
Operating	(0.6%)	0.2%	1.1%	2.7%	4.3%	5.3%
Net	0.3%	0.9%	1.7%	2.5%	3.3%	3.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
salesforce has done a lot right in getting from negative to positive margins, but last quarter it made a sudden change in game plan, inking its first ever "all you can eat" deal with Dell (Nasdaq: DELL). This reportedly involved Dell paying a lump sum for unlimited access to salesforce's databases from now through 2011.

Depending on where you sit, the move smacks of either brilliance, or desperation, as "unlimited access" plans often pop up in slowing-growth situations such as phone services and Internet access. I don't know about you, but when I read tomorrow's earnings news I'll be most interested in learning whether salesforce has been pursuing similar contracts with other customers, and I'll also be looking to see how the company's free cash flow looks.

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