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Salesforce to Expand in Germany through Buyout, Partnerships

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salesforce.com, Inc. (CRM) is looking for strategic acquisitions to strengthen its foothold in Germany, reported Bloomberg. Salesforce’s CEO Marc Benioff also highlighted that the company is banking on Germany with a targeted sales of $1 billion.

Salesforce is expected to expand its German headquarters in Munich and opened another office in Berlin. The company has also roped in T-Systems, a unit of Deutsche Telekom, as a provider. Moreover, Salesforce reported that companies such as Bayer Vital, Commerzbank and Software AG coupled with Endress&Hauser, airberlin and BMW have selected its cloud-based services.

Salesforce’s comments come at an opportune moment as a study conducted by Computer Weekly and Tech Target forecasts that IT budgets in Europe will increase at an average rate of 3% in 2014. The study also revealed that the increase would be propelled by investments in cloud computing and data analytics segments. Salesforce, being a cloud computing solution provider, could incrementally benefit from this increase due to its expansionary initiatives.

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. In the last reported quarter (first-quarter 2015), Salesforce’s revenues from Europe increased 42%. So, to-date, investment in Europe has yielded positive results.  

It is worth mentioning that Salesforce had earlier outlined its plans to expand in the European counties by opening data centers in the U.K., France and Germany by 2015. 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 prefer data to be stored locally for security reasons. 

We remain encouraged by the rising number deal wins at Salesforce and the rapid adoption of its 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 tempered by competition from International Business Machines (IBM), Oracle Corporation (ORCL) and SAP AG (SAP). Currency headwinds and increase in investments could pose additional challenges.

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

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