Salesforce.com Losses to Continue in Q4; What to do with the Stock?

Salesforce.com (NYSE:CRM) said Thursday it slipped to a loss in its third quarter on higher costs and said the losses would continue into the fourth quarter.

Trip Chowdhry, an analyst with Global Equities Research, shared his views on the stock.

Our best guess is that the negative data points we are getting, may show up in Salesforce.com financials probably sometime around April 2012. So investors should gradually reduce their CRM position into strength and hype, while the hype is still there, Chowdhry wrote in a note to clients.

The analyst said that since every company had a cloud strategy, there was nothing novel about Salesforce anymore and getting new customers would be extremely difficult. The company is also facing severe competition from Oracle (NASDAQ:ORCL).

Oracle has blocked CRM's feeder system and it is only going to get worse for CRM moving forward....this is the best as it gets for CRM, Chowdhry said.

The analyst noted that Salesforce had made a major strategic mistake - instead of re-architecting their muli-tenancy architecture, with virtualization, the company had put a lot of effort into sales and marketing and creating hype. But, the technology they have is lagging the hype they created, and the current prospects are seeing right though it, and have decided to wait for Oracle's solution.

It is too late for course correction for CRM, the analyst added.

We do think many investors are mesmerized by CRM, and may think weakness as a buying opportunity, however, we think, any strength is a selling opportunity. There is nothing to panic right now, we think investors have about 2 Qtrs to take some money off the table, Chowdhry noted.

Salesforce.com, a provider of customer-management software, reported third-quarter net loss of $3.76 million or 3 cents per share, compared with a profit of $21 million or 15 cents per share a year earlier.

Excluding items, it earned 34 cents per share, higher than 32 cents per share last year. On average, 40 analysts polled by Thomson Reuters expected earnings of 31 cents per share for the quarter.

The San Francisco, California-based company's sales rose 36 percent to $584 million, topping Street estimate of $571.42 million.

For the fourth quarter, Salesforce.com expects a net loss of 5 to 6 cents per share, but expects to report adjusted earnings of 39 to 40 cents per share. Revenues are estimated in the range of $620 million to $624 million. Analysts currently expect earnings of 40 cents per share on sales of $609.79 million for the fourth quarter.

Shares of Salesforce closed Thursday's regular trading session down 4.3 percent, or $5.67, at $126.09. In the after-hours, the stock further plunged 7.13 percent, or $8.99, to $117.10.