What’s Next for Salesforce.com (NYSE: CRM) Stock After Solid Earnings?

crm stock

It's been a good year for Salesforce.com Inc. (NYSE: CRM) stockcrm stock

The cloud computing pioneer was already on a tear but really began to pick up steam when rumors started circulating last month that a legacy tech giant was looking to buy the company. On that day, the CRM stock price soared 11.6%.

Those rumors have all but quieted as of late and CRM stock retreated a bit from these highs. But Salesforce earnings released yesterday (Wednesday) reawakened Wall Street to this cloud innovator.

Salesforce revenue was up 23% year over year to $1.5 billion. It was the 44th quarter-over-quarter growth in sales. And even for a company that spends a lot on marketing, it managed an earnings-per-share of $0.01 and maintained an impressive free cash flow of 15.5% of revenue.

CRM stock was up 5.2% as of 11 a.m. ET today. On the year, CRM stock is now up about 25%.

Salesforce has really been flying onto Wall Street's radar lately. Though, the story of CRM stock is much more than just the recent headlines.

This is a game-changing company with a revolutionary CEO in Marc Benioff. He's helped make cloud computing a buzzword in the tech sector.

Microsoft Corp. (Nasdaq: MSFT), Amazon.com Inc. (Nasdaq: AMZN), and International Business Machines Corp. (NYSE: IBM) are often the loudest voices in the discussion over cloud, though it was Salesforce that started it well before the tech world even knew what the cloud was.

Here's the story behind Salesforce.com and why, as cloud computing matures, CRM stock will pay off for investors...

CRM Stock Is a Pure Play on Cloud

Salesforce is the brainchild of Marc Benioff, an Oracle Corp. (Nasdaq: ORCL) alum and friend to former CEO Larry Ellison.

His plan was to give salespersons an ability to track leads and manage clients (customer management relationship, or CRM) in a much easier, more cost-effective manner. When he started up Salesforce in 1999, the CRM leader was Seibel CRM Systems Inc.

He was taken aback by the expensive overhead costs that came with managing sales software. It wasn't just the software that was expensive. It was the support, the consulting services, the hardware, the training, etc.

That's where his "End of Software" campaign began.

Benioff wanted to provide the CRM platform within an on-demand "Software as a Service" (SaaS) subscription-based model. It would deliver business applications over a web-interface - what we've come to call the "cloud."

Salesforce is now the leader. Seibel was acquired by Oracle in 2006.

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Last month, investors went on a big cloud-buying spree when companies like Amazon and Microsoft broke out more explicit numbers on their cloud businesses for the first time.

But what Wall Street didn't seem to get at that moment was that the battle for cloud is still in its early stages and there's a lot of room to innovate.

You see, most people think of cloud as "virtual machines." They think of Amazon Web Services. They think of the on-demand, off-site cloud infrastructure handling file and e-mail storage that is now replacing the traditional data center architecture.

Cloud is much more than that. And a lot of what cloud is shaping up to be has largely been prodded in that direction by Benioff.

Benioff sees cloud as more than a replacement for data centers and big iron. He sees software as a service. Customer data, enterprise applications, enterprise resource planning (ERP) - all of that should be handled in the cloud, according to Benioff.

Benioff isn't paying lip service to cloud in his investor presentations and earnings calls, he's helping define it and chart its future.

The Bottom Line: CRM stock is up over the last month on acquisition rumors and that rally has been sustained by positive earnings. But Salesforce's value in the cloud goes beyond this recent enthusiasm. This is a pioneering company in the space and they'll likely continue to chart the course for the big players as cloud computing matures and the industry moves beyond just the "virtual machines."

Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.

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