Salesforce.com IPO Raises $110 Million
Salesforce.com successfully launched its IPO on the New York Stock Exchange, roughly one month after its expected debut. Trading under the symbol CRM, 10 million shares of Salesforce.com stock were priced overnight at $11, well above the initially planned range, putting $110 million in the company's coffers. The stock quickly appreciated, selling at over $15 for most of the day before shooting up late to close at $17.20, more than a 55 percent first-day gain.
Salesforce.com's scheduled May IPO was delayed due to procedural missteps by the company, including a high-profile article in The New York Times
written with the full cooperation and participation of Salesforce.com CEO Marc Benioff during the SEC-mandated quiet period. But the success of the launch indicates that investors were not distracted from the company's strong customer growth and recent profitability.
Going public creates a new set of challenges for Salesforce.com. Not only must its management continue to comply with ongoing and increasingly complex disclosure regulations, but it must also contend with the overnight wealth enjoyed by the company's currently faithful employees. Erin Kinikin, vice president and research director at Forrester Research, says, "There is a core set of people that is going to come out of the lockout fully vested, and quite wealthy," referring to a span of several months when insiders participating in an IPO may not sell their shares. "The kinds of things Salesforce.com needs to worry about are employee retention and customer satisfaction, because in the hosted model, if the customers don't renew, all you're doing is churning."
Industry watchers are keeping a careful eye on how Salesforce.com spends its money in the future. In the IPO process the company had disclosed that it spends significantly more on sales and marketing than on research and development. "Salesforce.com spends about nine percent on R&D....That means they have around 60 people really keeping the entire 10,000 customer system up and running," Kinikin says. "There certainly are going to be a lot of other companies that would like to hire them away."
"They're going to have to go beyond basic levels of functionality and put more into R&D in order to keep winning contracts and keep clients from churning," says Wendy Close, CRM research director at Gartner.
If Salesforce.com's competitors learned anything from its financial disclosures, they aren't telling. "The only surprise was what wasn't in there, really," says Siebel On Demand General Manager Ken Rudin, referring to any detailed plans for vertical market support or on-premise software.
"The big bet in all this is that investors will value the relatively certain revenue stream generated by subscription pricing at a much higher value than the feast-and-famine nature of licensed software sales," says Mike Doyle, chairman and CEO of Salesnet. Doyle adds that a strong Salesforce.com showing would bode well for a potential Salesnet IPO next year.
Later this year RightNow Technologies, another on-demand CRM specialist, will have its IPO. "RightNow has already filed, and RightNow is to hosted service what Salesforce.com has been to hosted sales," Kinikin says. "Then, I think we're going to see some acquisitions and consolidations."