Wednesday, July 11, 2007

salesforce.com (NYSE:CRM): Well hello there Mr. Softee..

Couple firms comments on salesforce.com (NYSE:CRM) after Microsoft Corp said on Tuesday it will offer its new Web-delivered business software for tracking customers at below-market prices. The world's largest software maker this quarter will make available Microsoft Dynamics Live CRM, the first version of its customer-relationship management software:

- JMP Securities notes Microsoft's pricing seems designed to undercut salesforce.com's prices. As a result, they believe this Microsoft announcement may freeze some salesforce.com sales cycles and put pressure on salesforce.com's pricing. The magnitude of the impact on salesforce.com may depend on how aggressively Microsoft markets CRM Live and the richness of the CRM Live functionality. Microsoft plans to offer customers an early access version to Microsoft Dynamics CRM Live Professional at no cost this year. In 2008, Microsoft plans to charge a promotional price of $39 per user per month and $44 per user per month in 2009 and beyond. This compares to salesforce.com's list price of $65 per user per month for its professional edition. JMP expects the first version of the Microsoft Dynamics CRM Live service to be released before the end of September.

Maintains Market Perform rating.

- Cowen notes MSFT's Pro Edition will be given away for free for the remainder of this year for accounts deploying five or more users. In marked contrast to SFDC's direct sales strategy, MSFT intends to drive sales by promoting its CRM solutions heavily in its Information Worker and Dynamics partner networks. While the firm is not expecting Live to generate meaningful sub counts over the next few quarters, they expect 9,500 MSFT CRM resellers and free trial program for accounts evaluating 5 or more seats to present a challenge to SFDC's sales cycles. Firm believes free trials and bundling discounts will enable MSFT to sell effectively back into its installed base. They expect MSFT's mid market dominance to present a challenge to SFDC, given that they estimate that the vast preponderance of SFDC's have signed up for 20 seats or fewer.

CRM is trading at 27x COWN's CY08 FCF forecast of $196M (+34%). Maintains Neutral.

Notablecalls: Mr. Softee's entry into the CRM space should not come as a surprise. Nor should the pricing be surprising given MSFT's usual conduct entering a new line of business. "I don't think this is a battle that will be won on price alone," said Bruce Francis, a spokesman for Salesforce.

Bruce's right of course but considering the size MSFT's client base, it's going to put pressure on CRM sooner or later. My guts tells me it's going to be later rather than sooner but with CRM trading gazillion times EPS, it's increasingly difficult to see much upside from here.

As for the ultra s-t, I think CRM may get hit following the calls but downside will be limited. Watch the 200 day MA for a bounce.

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