Salesforce.com Remains a Compelling Opportunity

Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Salesforce.com (NYSE: CRM) recently acquired ExactTarget (NYSE: ET) for a hefty 53% premium, which is making investors question whether or not Salesforce.com is effectively deploying capital. Some are concerned by the valuation, and wonder if Salesforce.com even merits the $22.5 billion market capitalization and 6.9 price-to-sales multiple.

Potential synergies

Anyone who works in sales will understand that coordination and collaboration are two of the most essential ingredients for success. What Salesforce.com offers is enterprise-level software for any company that needs customer-relationship management when selling. Salesforce.com helps small, medium, and large-sized organizations to better coordinate and employ selling efforts. This is important, as information on selling may need to run through many departments within the same company. Decisions need to be made fast, and with this software, companies are able to limit bureaucracy, increase sales performance, and better enhance customer satisfaction while managing multiple marketing initiatives all at once.

The acquisition builds on top of Salesforce.com's marketing software. ExactTarget provides a mix of consultation and advice to advertisers wanting to implement CRM software, e-mail marketing, software support, consulting, and analytic market research. With the acquisition of ExactTarget, Salesforce.com hopes to win the hearts of chief marketing officers across the United States by being an all-in-one solution. Think of it like Boston Consulting Group merging with IBM’s business analytics division but apply it to the world of marketing, and you can get a basic idea of what’s going on.

Gartner projects that spending by chief marketing officers is going to exceed the spending done by chief information officers by 2017. AT&T projects that the cloud will be a $210 billion industry by 2017; so if marketing spending is going to become bigger than that, you can only imagine the growth possibilities with Salesforce.com.

The synergies that could happen by having a front-facing consultation team along with back-end software could be tremendous. Currently, the management team believes that interactive marketing, including e-mail marketing and marketing automation, will exceed $15 billion by 2016 (which is just a small component of what Salesforce.com does).

Social and search engine marketing will grow

The world is continuing to revolve around non-sales-selling, along with personalized selling. The approach to customers should be either heavily customized based on individual need or should be based on the lack of selling presence. Google's (NASDAQ: GOOG) search advertising has allowed some companies to avoid the investment into a front-facing sales staff. Today’s marketing is more about non-direct marketing that tries to sell without the customer feeling as if they have been sold to.

Analysts on a consensus basis believe that Google will continue to grow earnings by 14.5% on average over the next five-years. This plays into the fact that web advertising is continuing to be seen as a stronger alternative to traditional media advertising. Facebook is also projected to grow earnings by approximately 29.2% on average over the next five years.

Both search and social marketing are projected to grow exponentially over the course of five years. ExactTarget’s merger with Salesforce.com will give marketing executives the needed insights plus technology to carry out an effective advertising strategy across all web platforms going forward.

Analysts on a consensus basis anticipate Salesforce.com to grow earnings by 28.4% on average over the next five years. This rate of growth could be more substantial as it continues to build upon the philosophy of being an all-in-one solution for all marketing needs.

Assuming Salesforce.com can maintain its number-one market share in customer-relationship management, and that it can effectively integrate a consulting practice into its business, the company's stock should appreciate significantly over the course of five-to-10 years.

Conclusion

What you’re buying with Salesforce.com is the company that could represent every facet of web-based marketing and selling. The combination of technology, support and consultation will lead to cross-selling opportunities for this company, which will improve earnings growth going forward. Investors should stay the course with this investment, especially if growth is the primary investment objective. The 20% pullback from all-time highs could be the buying opportunity we have all been waiting for.

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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Google and Salesforce.com. The Motley Fool owns shares of Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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