Salesforce.com One Step Closer to IPO

Hosted CRM vendor Salesforce.com plans to raise as much as $85 million in its initial public offering (IPO), according to amended registration papers filed on Tuesday with the Securities and Exchange Commission (SEC). The papers state that the company plans to offer 10 million shares--or roughly 10 percent of itself--to the public at between $7.50 and $8.50 per share. At the high end of that range, the company would have a market capitalization of $850 million. The San Francisco-based company originally filed the registration papers for its IPO in mid-December, at which time it stated that it expected to raise as much as $115 million. (Due to SEC regulations, Salesforce.com cannot at this time comment on whether it reduced the original number of shares it planned to sell, the intended price range, or both.) Earlier this month the San Francisco Chronicle reported that an SEC inquiry was underway related to a 2003 change in the way the vendor accounted for its sales commissions. That inquiry reportedly delayed the IPO, which had been anticipated for as early as March. In the new filing, which reflects changes to the company's accounting procedures and amends previous financial results, Salesforce.com announced that in the fiscal year that ended January 31, 2004, it notched its first-ever full-year profit, $3.5 million on sales of $96.0 million. That compares to a net loss of $9.7 million in 2003, on $51.0 million in sales. The $9.7 million loss is larger than the $9.3 million loss the company noted in earlier SEC filings, and the $3.5 million in full-year profit for 2004 is significantly smaller than the $4.5 million in profits the company had initially claimed for the first nine months of the fiscal year. Meanwhile, the company stated that it has more than $35 million on hand in cash and cash equivalents, a figure it expects will increase to more than $106 million following the IPO. One stock market analyst suggests that the change in initial trading stock price may not be all that important. David Menlow, the president of IPOfinancial.com and IPO Financial Network, calls the repricing "a totally insignifcant piece of information." There are "myriad explanations as to why that can happen, none of which is rooted in any logic," he says. The original $115 million figure, he notes, could have included the "overallotment" allowance of 1.5 million shares set aside in case demand exceeds expectations. "The [new] numbers are consistent with the original premise of the company," Menlow says. "If they had gone from a profit to a loss, we'd be having a different conversation." Still, "a restatement is the exception rather than the rule," he says. While it could have had a negative effect on the value of a company, Menlow says it's a positive sign that Salesforce is recalculating its finances prior to the offering. The company has reserved the ticker symbol "CRM," and will be listed on the New York Stock Exchange. Underwriters in the offering include Morgan Stanley & Co., Deutsche Bank Securities, UBS Securities, Wachovia Capital Markets, and William Blair & Co. Proceeds from the IPO will go toward general corporate purposes, including working capital and capital expenditures, as well as possible acquisitions, according to the SEC filing. As of mid-April, when Salesforce.com announced its Spring '04 upgrade, it had 9,500 customer companies, 140,000 users, and more than 400 employees.
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