So how are cloud computing companies facing this double reality? Let’s look at three examples.
Salesforce.com: The biggest player in cloud marketing
With Social.com, Buddy Media, Radian6 and now ExactTarget Inc (NYSE:ET) in its product portfolio, Salesforce.com is probably the company with the biggest exposure to cloud marketing. Furthermore, because salesforce.com, inc. (NYSE:CRM)’s traditional focus has been customer relationship management (CRM) software, it is clear that the company envisions a future where companies rely on them for almost everything from email marketing campaigns to booking the sale. The main risk is that, as I mentioned before, being big in the cloud marketing industry is no guarantee of success. I doubt that Salesforce.com will ever have pricing power in this segment. The only way to make profit is to sell massively. This is feasible, but only if Salesforce continues innovating. If a startup comes up with a new algorithm idea or design that is more pleasant to Chief Marketing Officers then it will become a threat, and salesforce.com, inc. (NYSE:CRM) cannot buy them all.
Responsys Inc (NASDAQ:MKTG): Being undervalued and a potential acquisition target makes this stock highly attractive
Just like ExactTarget Inc (NYSE:ET), Responsys Inc (NASDAQ:MKTG) provides a software-as-a-service platform that enables customers to automate marketing campaigns via email or social networks. Even though competition is fierce, however, Responsys may be a good buy as a stock. This is because according to the company’s last 10-K, revenues for 2012 were $163 million (for comparison purposes, ExactTarget’s revenues were $292 million last year.) Considering that Salesforce.com paid an 8 times multiple on sales for ExactTarget Inc (NYSE:ET), Responsys would be worth $ 1.3 billion, which more than twice the value of its current market capitalization of $600 million. Some have criticized salesforce.com, inc. (NYSE:CRM) for paying a high premium, of course. Responsys is trading at a 3.6 times multiple, however, which suggests that the stock is undervalued.
Marketo: Beyond the IPO
Marketo Inc (NASDAQ:MKTO) is a cloud marketing company that targets small businesses. Its flagship product is its Standard Product Marketing platform ($1,995 per month); it offers most of the things that a marketer wants to have access to. Furthermore, it is easy to integrate Marketo’s platform with most popular CRM systems including Microsoft Dynamics CRM, Salesforce.com,salesforce.com, inc. (NYSE:CRM) NetSuite, and SugarCRM.
How good is Marketo as a stock? It’s perhaps too early to make any conclusions, as Marketo went public on May 17th. The IPO was relatively successful: it sold 6.1 million shares at $13 a piece.
The current market capitalization of Marketo is approximately $645 million. Considering that in 2012, the company’s annual revenue came out $58.4 million (up 81% year-over-year), the current market valuation implies a 11 times multiple. This is not a sign of overvaluation, but I cannot say that shares at cheap at this moment. Therefore, I suggest waiting for more developments in the next two quarterly earnings calls.
The bottom line
Cloud computing as a business has two different realities. One reality involves a solid and growing demand for more online marketing solutions. The other reality involves a fierce supply-side competition with low barriers to entry. Being big is not a guarantee of success. I found that Responsys is a slightly better investment than its peers, as it may be undervalued and could potentially be acquired by some of the major players in the middle run.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com.
The article Cloud Marketing Stocks: Demand Is Growing, but so Is the Competition originally appeared on Fool.com.
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