Investors Have Their Heads in the Cloud

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Salesforce Price Jump Reminds us of Cloud Computing Potential

Shares of Salesforce (NYSE: CRM) jumped over 7% today due to better than expected third quarter sales that stemmed from contracts with large business customers. Not only did shares of Salesforce jump in this mild trading day, but so did shares of its four biggest competitors: Microsoft, Oracle, SAP (NYSE: SAP), and Netsuite (NYSE: N). This across-the-board jump suggests that the market it becoming increasingly bullish on companies that offer cloud computing services. As is normally the case, it appears that the aforementioned companies with the smaller market capitalizations may offer better returns than their larger counterparts.

The fact that the market bid up shares of Netsuite and SAP higher than shares of Microsoft and Oracle after the positive Salesforce sales numbers may indicate that investors feel more attractive returns in the cloud computing industry will come from mid to large cap companies, rather than mega caps. In addition, the preference towards Salesforce, Netsuite, and SAP has been consistent over the past 52 weeks, as you can see in the table and chart below.

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p>Microsoft</p> </td> <td> <p>Oracle</p> </td> <td> <p>SAP</p> </td> <td> <p>Salesforce</p> </td> <td> <p>Netsuite</p> </td> </tr> <tr> <td> <p>Market Cap</p> </td> <td> <p>$224 Billion</p> </td> <td> <p>$145 Billion</p> </td> <td> <p>$88 Billion</p> </td> <td> <p>$20 Billion</p> </td> <td> <p>$4 Billion</p> </td> </tr> <tr> <td> <p>52 Week Return</p> </td> <td> <p>7%</p> </td> <td> <p>1%</p> </td> <td> <p>28%</p> </td> <td> <p>30%</p> </td> <td> <p>46%</p> </td> </tr> <tr> <td> <p>Today’s Return</p> </td> <td> <p>.95%</p> </td> <td> <p>.23%</p> </td> <td> <p>1.21%</p> </td> <td> <p>7.98%</p> </td> <td> <p>2.37%</p> </td> </tr> </tbody> </table>



<img src="/media/images/user_6/picture-1_large.png" />

(Yahoo! Finance)

Cloud Computing is a Resilient Business

One of the main reasons that cloud computing has proven useful for various organizations is that it provides a relatively inexpensive alternative to more traditional data management techniques. In other words, cloud computing is cheaper than maintaining and running internal databases. Perhaps Salesforce’s positive numbers today said it the best, but cloud computing will continue to roar ahead despite tough economic conditions.

In fact, the need for companies (especially small to medium sized businesses) to save on costs and become more efficient as a result of higher taxes and higher healthcare spending actually bodes well for cloud computing companies such as Salesforce, Netsuite, and SAP. If you take a look at the 3-month graph below, the price performance of the aforementioned companies appear to provide a nice safety valve against systematic market risks that affect the S&P 500. It is important to note that although Salesforce appears highly correlated with the S&P 500, today’s boost may actually be an indication that the market feels Salesforce should more closely follow (and maybe even lead) the price movement of SAP and Netsuite.

<img src="/media/images/user_6/picture-2_large.png" />

(Yahoo! Finance)

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