SuccessFactors Up, Salesforce Down In Analysts' ForecastsSuccessFactors Up, Salesforce Down In Analysts' Forecasts

Maybe it's the law of big numbers, maybe it's marketing, maybe it's execution - but longtime SaaS poster-child Salesforce.com just had one analyst cut his rating estimates for the $1.2 billion company, while another analyst boosted his ratings and estimates for up-and-coming SaaS provider SuccessFactors. Which way are the clouds blowing?First, the not-so-good news: "Soleil Securities analyst Daniel Cummins today cut his rating on Salesforce from "Buy" to "Hold" and cut his estimate on the stock, saying bookings growth is continuing to be "choppy" and operating profit improvements won't be what he thought they'd be," says Barron's Tech Trader Daily.

The questions about Saleforce's ability to maintain the heady growth rates of the past few years began to surface in May after the company revealed in its last earnings report that first-quarter bookings were lower than they'd been in the same quarter a year earlier. As we wrote at the time:

Salesforce.com's first-quarter new-business signings came in slightly below last year's as customers took longer to sign, opted for smaller deals, and pulled back on add-ons and upgrades. And while Salesforce is still growing nicely, CEO Marc Benioff was more restrained in the comments he made to analysts than he had been after the previous two quarters. Because of that first-quarter slip in new-business signings - which Salesforce defines as incremental orders from new and existing customers, excluding renewals - the company is reducing its guidance on full-year revenue growth by 4%, Benioff said, and projecting revenue growth of 17% for the 12 months ending Jan. 31, which would total between $1.25 billion and $1.27 billion.

While Soleil's Cummins kept his share-price target at $44 for Salesforce, he "cut his estimate for the fiscal year ending January of 2011 to 82 cents per share in profit from 93 cents previously, and cut his revenue outlook to $1.42 billion from $1.45 billion," said Tech Trader Daily.

Meanwhile, the strong quarterly results released by SuccessFactors Monday night caused analyst Michael Nemeroff of Wedbush Morgan to project that SuccessFactors would become an outperformer in the "subscription software" market, Tech Trader Daily said.

SuccessFactors, which recently won a very high-profile global contract from Siemens for 420,000 seats, is "well-positioned to continue to deliver industry-leading organic growth rates and increase market share during the economic downturn," said analyst Nemeroff.

Saying that SuccessFactors will "be an early cycle play on the recovery," Nemeroff upped his forecast for this year's revenue from $146.8 million to $149.2 million, along with a reduction in its projected net loss from 19 cents a share to 5 cents a share.

Looking ahead to 2010, he expects SuccessFactors to grow its revenue by about 20% to $179.1 million, giving it the opportunity to turn a projected profit of 7 cents per share. On the strength of that sustained growth, the analyst said, he is raising his target price on SuccessFactors stock to $13 a share from $11.

But reality, as we all know, has a way of intruding on the projections of analysts and other prognosticators, and Salesforce - with revenue 8 times that of SuccessFactors, and a fearless CEO in Marc Benioff - certainly has no intentions of capping its 10-year adventure at or above its current size. So it wouldn't be a surprise to see the company exert its substantial financial muscle to regain its growth momentum through an acquisition.

And we all need to remember that while it may seem like SaaS and cloud computing have been around since the last time the Pittsburgh Pirates won a World Series (that would be 30 years ago, I'm sad to say), the industry is still in its infancy and the leaders we see today might very well be replaced by new ones in a few months. But for now, SuccessFactors is riding high - we'll see if it can hold that spot.