salesforce.com, inc. (CRM) Makes a Doubtful Purchase

At the end of the first quarter, ExactTarget had $378 million in total assets. It means that the hefty portion of the transaction would end on the goodwill part of Salesforce.com’s balance sheet. Goodwill already accounted for 24% of Salesforce.com total assets. Goodwill is tested for impairment every year. When the goodwill is impaired, a company makes a write-off of assets on the balance sheet, which is very bad for the stock. Typically, the more goodwill a company has on its asset list, the riskier the investment.

salesforce.com, inc. (NYSE:CRM) states that ExactTarget Inc (NYSE:ET) would contribute approximately $120 million to $125 million in revenue for the remainder of the fiscal year. Salesforce.com is projected to achieve almost $4 billion in revenue this year, so the purchase would contribute approximately 3% of the revenue.

Bottom Line

ExactTarget shareholders must be happy. They’ve just gotten a hefty premium for the company that was losing money and was projected to lose money in the next two years. Oracle Corporation (NASDAQ:ORCL)’s, Microsoft’s and SAP’s shareholders can sleep well. Nothing disruptive happened.

Their competitor has spent a lot of money on an asset that has yet to prove its worthiness. It’s only Salesforce.com shareholders that might be unnerved. The transaction must give a great boost to salesforce.com, inc. (NYSE:CRM) revenue to justify the price. With Saleforce.com’s market capitalization of more than $22 billion, no one would be buying it for growth prospects. The company must improve its profitability to deliver value to shareholders.

I repeat my stance: Salesforce.com is overvalued.

The article Salesforce.com Makes a Doubtful Purchase originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Microsoft and Oracle. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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