3 Reasons Salesforce.com, Inc Stock Could Fall

Setting aside the month-long rumors of an eventual takeover of Salesforce.com -- a topic CEO Marc Benioff staunchly refuses to address -- it got 2015 started with a bang. Slightly better than expected earnings, and even a surprising GAAP (including one-time items) earnings-per-share, or EPS, win, has Salesforce.com's stock flying high.

Shareholders are reveling in a 5% jump in share price as of this writing since Salesforce.com shared its fiscal year 2016 Q1 a week ago, and it's warranted. However, there are a few bumps in the road ahead Salesforce.com will need to successfully navigate to continue its stellar run. Can Benioff and team deliver the goods? More than likely, but investors should keep tabs on these key areas.

It's a small worldBenioff made a point of mentioning that several of the Salesforce.com execs on its conference call were spread out around the world. Benioff was in Chicago, and President Keith Block called in from London. What's the big deal? Last week was the kick-off of what Benioff called Salesforce.com's "world tour," and it couldn't come at a better time.

Despite the usual Salesforce.com earnings call "rah-rah" surrounding its revenue growth in the Asia Pacific markets, not to mention Europe, its "fastest growing region," geographic revenue diversification remains a concern. Yes, sales in both markets grew, but that only tells part of the Salesforce.com revenue story.

Last year at this time, 71% of Salesforce.com revenues were derived from the Americas, 19% from Europe and 10% from the Asia Pacific region. This year? The Americas now accounts for 74% of sales, while the Europe and Asia Pacific markets dropped to 17% and 9%, respectively. Cause for alarm? No, but worth Benioff's "world tour," and monitoring going forward.

Growth comes at a priceThe reason Salesforce.com's $0.01 EPS was a pleasant surprise instead of natural extension of its top line improvement was on-going increases in expenses. Costs associated with developing its new, and potentially game-changing, analytics cloud and data analysis solutions are just the tip of Salesforce.com's expense-related iceberg.

A hiring binge, which is expected to continue, has increased Salesforce.com's workforce by over 2,500 compared to a year-ago, and it now has 16,852 employees. All those new faces are one of the reasons operating costs increased over $100 million. That, combined with a nearly $90 million jump in cost of revenues, ate into Salesforce.com's bottom line.

Of course, investing in the business to drive long-term growth is makes sense, and it appears to be working as Salesforce.com expands its offerings and the personnel to deliver its suite of solutions to the masses. That said, continuing to show a return on all those investments is necessary to keep shareholders appeased. Again, not a deal-breaker by any means, but worth watching.

Playing in a bigger sandboxSalesforce.com management weren't just sharing the usual upbeat giddiness when discussing its new analytics cloud service, they truly believe it's a "breakthrough product," and early results seem to back up their excitement. According to Benioff, Salesforce.com is talking to more SAP customers than ever, thanks to analytics cloud, and its one reason customers are buying multiple services, which in turn led to "an all-time high of seven-figure deals" last quarter.

The flip-side of the coin is that SAP generated just shy of $4 billion last quarter, driven in part by its 121% increase in new cloud sales, and strong software unit results. In other words, Salesforce.com with its expanded product suite is directly in the path of some of the world's biggest cloud and analytics players. Not to mention, Salesforce.com's "world tour" and its efforts to jump-start the European market puts it directly in German-based SAP's backyard.

Benioff certainly is worried, saying "sorry SAP," when announcing Salesforce.com's sales and service cloud leadership position. But the shift to analytics, an area of the cloud many pundits agree offers huge potential as companies search for ways to utilize all that data, puts Salesforce.com in the cross-hairs of another group of competitors. Including folks like Microsoft and IBM .

Competition is certainly nothing new to Benioff, nor are the need to further diversify geographic revenue sources or successfully manage overhead. And as last quarter demonstrated, Salesforce.com appears to be delivering, on all fronts. If it can continue to do so in these key areas, long-term shareholders will reap the rewards.

The article 3 Reasons Salesforce.com, Inc Stock Could Fall originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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