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Why 2012 Could Be Another Big Year for Cloud Computing

http://www.fool.com/investing/general/2012/01/30/why-2012-could-be-another-big-year-for-cloud-compu.aspx

Tim Beyers
January 30, 2012

Now that 2011 has passed and 2012 is upon us, it's time to evaluate the stocks you own and are interested in. Should you buy? Sell? Hold? Ignore? Today, we'll put these questions to salesforce.com (NYSE: CRM  ) , a Motley Fool Rule Breakers recommendation that's also a key member of my Big Idea portfolio.

Salesforce is best known for supplying business management software over the Web. Since 1999, the company has battled and defeated threats, growing revenue an average of 27.7% annually over the past five years. New threats from Microsoft (Nasdaq: MSFT  ) and Oracle (Nasdaq: ORCL  ) aren't much different than the old, if only because they're failing to build social media elements into their offerings.

To be fair, profits have proven elusive for much of Salesforce's history due to heavy investments in infrastructure and stock-based compensation. Yet it's hard to argue with the results of those bets. Hundreds of thousands have written software for the underlying platform. Acquired talent tends to stay on and help build the business, which is growing even as Oracle is struggling to meet estimates.

Forecasts for Salesforce.com

Median Target Stock Price $147.70
Fiscal 2012 EPS Estimate $1.33
Fiscal 2013 EPS Estimate $1.63
Expected Annual Earnings Growth, Next 5 Years 24.77%
Forward P/E 87.67
CAPS Rating (out of 5) *

Source: Yahoo! Finance.

How will 2012 go for Salesforce?
Analysts are expecting milder growth when Salesforce reports full-year results next month. Earnings are expected to improve just 9% on a 36.2% increase in revenue. But is that really so bad? Benioff has said time and again that his aim is to build a $10-billion-per-year business delivering software over the Web. Gobs of profit will follow if he's successful.

So far, the team appears to be on track. Salesforce last quarter projected it would achieve a $3 billion revenue run rate during fiscal 2013 -- mostly on the strength of more than 100,000 "core" (read: "paying") customers using the platform for sales, service, and support. Add-ons such as the Chatter social collaboration tool also appear to be helping win deals.

Yet for as well positioned as salesforce.com appears to be, there are no gu