Salesforce.com Bets Big on Europe

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In a bid to strengthen its presence in Europe, Salesforce.com (CRM) will open data centers in the U.K. (probably by Aug 2014), and in France and Germany by 2015. Moreover, the company will increase its headcount across Europe by 500 during the period.

The opening of the data centers in these countries will help Salesforce to tap local small and medium businesses as well as government agencies. Government agencies usually require data to be stored locally and not in data centers outside the country for security reasons.  

Salesforce’s investments in the U.K., France and Germany comes at an opportune moment as a study by Computer Weekly and Tech Target forecasts that IT budgets in the U.K. are expected to increase 3.6% in 2014 and that of the rest of Europe by 3%.

The study also revealed that the increase would be spearheaded by investments in cloud computing and data analytics segments. Salesforce.com, being a provider of cloud computing solutions, could incrementally benefit from these investments.

Moreover, the company would be able to diversify its international revenues, going forward. Notably, in fiscal 2014, Salesforce derived 18% of the total revenue from Europe (17% in fiscal 2013), which increased 41.1% on a year-over-year basis.

We remain encouraged by the rising number deal wins at Salesforce and the rapid adoption of the company’s cloud-based solutions. Overall, the company’s diverse cloud offerings and strong spending on digital marketing remain the positives. Moreover, the company’s strategic acquisitions and the resultant synergies are expected to remain long-term positives.

Although, the company is growing reasonably in the cloud market, growth prospects have been rationalized by competition from International Business Machines (IBM), Oracle Corporation (ORCL) and SAP AG (SAP). Currency headwinds and an increase in investments could pose additional challenges.

Currently, Salesforce has a Zacks Rank #3 (Hold).

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