IB Net Payout Yields Model

SalesForce.com Surges 17% on Just Decent Earnings - Buy RVBD, TMRK on Valuations

Even though this market is adverse to risk, money is still jumping into some of the high flying techs such as SalesForce.com (CRM) or Priceline.com (PCLN) Last night CRM reported a strong earnings report that beat estimates by some 7%, but the stock trades at over 70x next year estimates. Solid report, but does it really suggest the stock is worth buying? It doesn't to us, but that doesn't keep the stock from going up. CRM is a homerun from a corporate standpoint as they are taking over the online CRM market.

Unfortunately everybody has caught onto this story and the stock has soared. As usual though the market tends to trade in a heard leading to a handful of stocks hitting absurd valuations. We'd rather see investments in say Riverbed Technology (RVBD) or Terremark Worldwide (TMRK). Both have similar growth patterns and will benefit from the new move to online CRM systems and cloud computing.

In fact all 3 companies have growth rates for the next 5 years in the 20%+ range. CRM only grew revenue by 25% in Q2 so the perception of huge growth is outside the reality. CRM is a great company, but it hasn't grown any faster then RVBD of late. RVBD expects growth to exceed 30% for all of 2010 and this growth has been picking up each quarter as the need to optimize networks continues to grow. And RVBD only has a forward PE of 28 which is likely to be lower then earnings growth in the near term.

TMRK is a big beneficiary of the growth in cloud computing such as the services offered by CRM. So while we suggest that investors follow the markets of CRM, we're not so sure about buying the stock. RVBD and TMRK provide much better valuations with similar growth. The key is that growth is similar though the perception is that CRM is by far the faster grower.

Highlights of CRM Q2 earnings:

-- Raises FY11 Revenue Guidance to $1.595 Billion to $1.6 Billion
-- Operating Cash Flow of $76M, up 66% Year-Over-Year
-- Deferred Revenue of $683 million, up 24% Year-Over-Year
-- 5,100 Net New Customers in Quarter
-- Total Customers at 82,400, up 30% Year-Over-Year 


Disclosure: Long RVBD, TMRK


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