The CRM sector has been experiencing rapid growth as technology adoption continues to grow. According to an estimate by Gartner, the SaaS-based CRM sector could reach $7.9 billion in 2016, an annual growth of 15% from $3.9 billion in 2011. Since competition is also intensifying, the key is to identify what companies will be able to profit the most.
Let’s take a look at three big companies in the industry.
salesforce.com, inc. (NYSE:CRM): Solid revenue growth, but increasing loss margin and operating costs
salesforce.com, inc. (NYSE:CRM) is the market and technology leader in on-demand CRM applications and business services. The company has a strong market position that it enjoys from being a first mover in the industry and providing low ownership costs for its customers.
The company has exhibited solid revenue growth, as it grew to $835 million in Q4, a 32% increase from last year. On the other hand, operating expenses increased 34% compared to the same period last year, to $672.1 million. This is due to higher expenses primarily in R&D (50.3%), sales & marketing (33%), and administrative expenses (23%).
The company is spending to enter other promising markets and to develop new products. salesforce.com, inc. (NYSE:CRM)‘s acquisition of Rypple in February 2012 allows it to offer services to the SaaS-based human capital management market. Similarly, the company has a social collaboration application platform called Chatter.
In order to generate revenue growth, salesforce.com, inc. (NYSE:CRM) incurs heavy expenses on headcount additions, data center expansions, and strategic acquisitions. There is a risk that these increased investments turn into losses due to its relatively high customer acquisition costs. These investments are certainly necessary for long-term growth, but could put pressure in the coming quarters, affecting the company’s operating margins, currently at 3.6%.
SAP AG (ADR) (NYSE:SAP): Increasing working capital is putting pressure on operating cash flow
SAP AG (ADR) (NYSE:SAP) is the recognized leader in providing collaborative e-business solutions for all types of industries and for every major market.
The company reported total revenue of $4.95 billion for Q3 2012, a 16.4% increase from last year on a constant currency basis. EPS was $0.65, 2.3% less than the same quarter the year before on a constant currency basis.
Operating cash flow, which is one of its strongest points, increased 3.1% from last year to $4.35 billion year to date. On the other hand, cash and cash equivalents dropped 20% due to the recent acquisition of Ariba.
With more than 12,000 partners, SAP AG (ADR) (NYSE:SAP)’s unique open ecosystem strategy helps it add additional customer value across all their channels. I consider this well-oiled system its biggest asset, followed by its systematic approach to expand and market its business, which keeps new clients coming in.