salesforce.com, inc. (CRM)

When you ask people their opinion of SalesForce.com, the responses seem to fall into two camps. The bullish camp typically hails SalesForce as the "leader in" (or even "inventor of") something called "cloud computing," cites historically consistent revenue growth, and points to a "potential market" (however it is defined) of a few billion dollars. Bears counter by pointing to astronomical ratios (as of this writing: P/E = 103, FP/E = 64, P/S = 5.5, P/B = 8.25), noting that insiders are selling a lot more than they are buying, and decrying the current "over-hyped" and "ill-defined" state of the cloud computing movement.

If you ask me, both sides have legitimate points. It's hard to argue that SalesForce hasn't been a highly successful pioneer in a previously unoccupied space (namely, software-as-a-service, which isn't exactly "cloud computing"), and as a result has staked out a sizable market share and established some nice recurring revenue streams. However, I think the "over-hyped" argument also has merit, as I see a parallel between the manner and levels with which the market currently values this stock and the way it valued some of the dot-com flameouts of the late 90s. The sky-high ratios tell me that there's a lot of expectation for torrid growth already priced in, but with big-name competitors (Oracle, SAP) launching their own SaaS offerings, and smaller, more agile and specialized shops quietly taking away market share, I'm not sure how realistic these expectations are. Additionally, it seems that SalesForce.com has some issues with end-user adoption, so we may see churn increase as this dissatisfaction causes organizational decision-makers to look elsewhere.

And then there's the whole "cloud computing" element. As a software executive, let me make one thing clear: at this point in its nascent history, no one has really agreed upon what "cloud computing" is exactly. This gives software marketing departments free reign to define "cloud computing" in whatever way best suits their company's desired message and positioning. Indeed, if you read the "Cloud Platform" page on SalesForce.com's website, it would seem that they've recently unveiled a mechanism by which "anyone" can "easily" build their own "application in the cloud" from a set of available components -- in other words, an API. While this is a welcome addition to their offerings in the name of innovation (following in the footsteps of Google and Amazon), I can tell you first-hand from years of systems design and integration experience that nearly all APIs promise more than they can ultimately deliver, so whether the SalesForce "Cloud Platform" ultimately goes anywhere (or adds anything to their bottom line) remains to be seen.

Bottom line: there's no doubt that SalesForce.com has changed the way we think about software and how it is delivered, but once the dust kicked up by its torrid growth and the surrounding hype settles, the foolish fundamentals would suggest that this stock faces an increasingly higher likelihood for underperformance.