Salesforce.com Plans to Go Public
Company Offers Software
On a Subscription Basis,
Tests Market for Tech IPOs
By DAVID BANK
Staff Reporter of THE WALL STREET JOURNAL
SAN FRANCISCO -- Salesforce.com Inc. will seek to raise $115 million in an initial public offering in which investors will weigh its success in offering software as a subscription service against increased competition from the industry's heavyweights.
The San Francisco firm's filing with the Securities and Exchange Commission reflects the accelerating pace of IPOs by technology firms, which had largely avoided the market since 2000. Like others testing the market, Salesforce (www.salesforce.com) is emphasizing an important distinction from dot-com-era offerings -- profits.
The company posted net income of $4.7 million on revenue of $66 million for the nine months ended Oct. 31, according to the filing. For the fiscal year ended in January, Salesforce reported a loss of $9.3 million on revenue of $51 million. The bulk of this year's profit, however, can be attributed to a $4.3 million credit the company recorded in August when it was released from a previous lease obligation.
Salesforce makes software for tracking customer accounts and automating the sales process. Unlike most business-software makers, the company, founded in 1999, doesn't sell its software as a product. Rather, it manages the technology in its own data centers. Subscribers pay a monthly subscription fee, and connect to their data through the Internet. In its filing, Salesforce claims 8,000 customers and more than 110,000 paying subscribers.
Founder and Chief Executive Marc Benioff is a former executive of Oracle Corp., the world's second-largest software concern. Mr. Benioff has pushed Salesforce's subscription model with a high-profile campaign against traditional software offerings.
Salesforce and other software-as-a-service start-ups represent a tiny fraction of the $7 billion customer-relationship management, or CRM, software market. But the upstarts are shaking up the traditional industry. Siebel Systems Inc., the biggest maker of CRM software, recently announced a partnership with International Business Machines Corp. to offer CRM OnDemand, and last month purchased a Salesforce.com rival, Upshot Corp., for $70 million. Siebel CEO Thomas Siebel said in October, "This is the way software is going to be delivered in the future."
Investors will be attracted to Salesforce's recurring monthly revenue, said Mike Doyle, CEO of Salesnet Inc. in Boston, a closely held competitor. "I think the market will embrace the model," he said.
The filing doesn't indicate the percentage of Salesforce's shares to be offered, nor the price of the shares. Mr. Benioff, who took only $1 in salary and no stock options this year, currently holds 31.6% of the company's shares. Halsey Minor, a founder of CNET Networks Inc., has a 10.2% stake.
Salesforce has shown strong growth, recording revenue of $5.4 million for the fiscal year ended Jan. 31, 2001, $22.4 million in fiscal 2002 and $51 million in 2003. Since its founding, the company has posted total losses of $78 million.
The offering will be led by Morgan Stanley.
Write to David Bank at david.bank@wsj.com
Updated December 19, 2003 |
