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  • 1. Software Salesforce.com Underperform (3) Change in Invoicing Policies Overstates RealFebruary 24, 2012 Billings GrowthAnalysts Conclusion: Reiterate Underperform on CRM. At first blush, the company beatPeter Goldmacher 4Q expectations and 1Q and FY13 guidance is low. It was a strong quarter with(415) 646-7206peter.goldmacher 100 seven figure deals, nine eight figure deals and the huge nine figure deal@cowen.com pushed into 1Q. However, billings growth of 57% was artificially inflated by $80M in incremental deferreds from a change in invoicing duration and a $75MJoe del Callar spike in LT Deferreds from large deals. Normalizing for these two factors yields(415) 646-7228joe.delcallar@cowen.com 35% billings growth, roughly in line with expectations. These two deferred revenue dynamics could persist all year. Looking at deferreds on an apples to apples comparison, we believe that sales force productivity likely declined again this quarter. To that point, SFDC has to generate approximately $2.85B (+34%) in subs revs and $2.22B (+61%) in total deferreds in FY13 to keep sales productivity flat without the considerable benefit of a change in invoice duration. In FY12, subs revs were up 39% and deferreds were up 48%. CRM trades at 6.2x EV/FY13E Revs of $2.94B (+30%).  The Numbers. CRM reported 4Q12 earnings of $0.43 (+41%) on revs of $632M (+38%), above consensus estimates of $0.40 on $624M. Total deferred revenues grew $460M Q/Q to $1.38B (+48%). However, excluding benefits from a large invoiced deal and an increase in invoice duration, mgmt stated that deferred revenue growth was 31%, which is in line with cons expectations for 29% growth. Billings were $1.1B (+57%). However, adjusted for the def rev benefit, billings growth was 35%, just slightly above cons of 32% growth. 4Q OCF was $240M (+45%). Excluding a $25M benefit from the large invoiced deal, OCF growth was 29%. 1Q13 guide for EPS of $0.33-0.34 on revs of $673-678M is below cons EPS of $0.36, but above cons revs of $663M. We are lowering our 1Q EPS est from $0.38 to $0.34 (+20%) on unch revs of $678M (+34%), in line with guide. FY13 guide for EPS of $1.58-1.62 on revs of $2.92-2.94B straddles cons EPS of $1.62, but is above cons revs of $2.9B. We are taking our FY13 ests from EPS of $1.76 on revs of $2.9B to $1.60 (+18%) on $2.94B (+30%), in line with guide.CRM (02/23) $131.7 Revenue $MMMkt cap $18.7B FY 2012 2013EDil shares out 141.8MM Jan Actual Prior CurrentAvg daily vol 4,685.4K Q1 504.4 — 678.152-wk range $94.1-160.1 Q2 546.0 — 710.3Dividend Nil Q3 584.3 745.7 753.7Dividend yield Nil Q4 631.9 769.0 796.8BV/sh $11.19 Year 2,266.5 2,903.1 2,938.9Net cash/sh $6.71 CY — — —Debt/cap 23.8% EV/S — — 6.0xROIC (LTM) 7.0%5-yr fwd NA OpEPS(a) $growth (Norm) FY 2012 2013E Jan Actual Prior Current Q1 0.28 0.38 0.34 Q2 0.30 0.42 0.39 Q3 0.34 0.45 0.40S&P 500 1363.5 Q4 0.43 0.50 0.47 Year 1.36 1.76 1.60 CY — — — P/E — — 82.4x Consensus numbers courtesy of First Call and StreetAccount. (a)Pro forma EPS numbers cited exclude stock compensation, non-cash convertible debt costs, and amortization of intangibles.Please see addendum of this report for important disclosures. www.cowen.com
  • 2. Salesforce.comBillings Growth Under Several FY13 Productivity Scenarios (Down 10%/Flat/Up 10%) 76% 80% 72% $8.00 60% Productivity 10% up: 58% 60% 55% $7.00 44% Productivity flat: 43% 40% 33% $6.00 26% 19% Productivity 10% down: 29% 20% $5.00 $4.08 $3.98 $4.09 $4.03 0% $3.69 $4.00 Productivity 10% up: $4.06 $3.39 $3.34 Productivity flat: $3.69 -20% $2.84 Productivity 10% down: $3.32 $3.00 -40% $2.00 -60% $1.00 -80% $0.00 FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A FY13E Sales Productivity Productivity 10% up: Productivity flat: Productivity 10% down: Billings Growth Source: Company reports, Cowen and Company estimates.Billings Growth Under Several FY13 Productivity Scenarios, Excl $155M in Invoice and Big Deal Benefits 76% 80% 72% $8.00 60% Productivity 10% up: 58% 60% 55% $7.00 35% Productivity flat: 43% 40% 33% $6.00 26% 19% Productivity 10% down: 29% 20% $5.00 $4.08 $3.98 $4.09 $4.03 0% $4.00 $3.39 $3.48 $3.34 Productivity 10% up: $3.82 Productivity flat: $3.48 -20% $2.84 $3.00 Productivity 10% down: $3.13 -40% $2.00 -60% $1.00 -80% $0.00 FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A FY13E Sales Productivity Productivity 10% up: Productivity flat: Productivity 10% down: Billings Growth Source: Company reports, Cowen and Company estimates. 2 February 24, 2012
  • 3. Salesforce.comProductivity in Terms of Billings/Prior Year Revenue FY08A FY09A 1Q10A 2Q10A 3Q10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A 4Q11A FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A 1Q13E 2Q13E 3Q13E 4Q13E FY13E Total Billings $945.5 $1,189.9 $260.3 $315.7 $327.0 $513.0 $1,415.9 $337.0 $412.9 $440.6 $697.3 $1,887.7 $484.6 $566.1 $566.8 $1,094.4 $2,711.9 $667.6 $744.9 $721.2 $1,361.7 $3,495.4 / Prior Year Pro Forma S&M Spend $351.1 $498.4 $128.3 $136.9 $143.1 $157.1 $565.5 $163.7 $170.1 $188.6 $213.3 $735.6 $230.7 $255.9 $275.4 $291.9 $1,053.9 $328.6 $342.3 $364.3 $375.6 $1,410.8 = Sales Productivity $4.03 $3.39 $2.27 $2.59 $2.57 $3.81 $2.84 $2.63 $3.02 $3.08 $4.44 $3.34 $2.96 $3.33 $3.01 $5.13 $3.69 $2.89 $2.91 $2.62 $4.67 $3.32 Y/Y Analysis Total Billings 54.5% 25.8% 9.8% 15.9% 22.7% 23.9% 19.0% 29.5% 30.8% 34.8% 35.9% 33.3% 43.8% 37.1% 28.6% 57.0% 43.7% 37.8% 31.6% 27.2% 24.4% 28.9% Prior Year Pro Forma S&M Spend 49.7% 42.0% 12.0% 12.2% 12.5% 16.8% 13.5% 27.5% 24.2% 31.8% 35.7% 30.1% 41.0% 50.4% 46.1% 36.9% 43.3% 42.4% 33.8% 32.3% 28.7% 33.9% Sales Productivity (1.4%) (15.9%) (25.0%) (20.2%) (13.3%) (9.0%) (16.2%) 15.6% 16.6% 19.8% 16.4% 17.5% 12.7% 10.4% (2.4%) 15.7% 10.4% (2.3%) (12.5%) (12.9%) (9.1%) (10.0%) Source: Company reports, Cowen and Company estimates. 4Q12 prod. benefits from $75M in long term deferreds from long-term deals, and from $80M in invoice duration increases.Productivity Metric Y/Y Growth 25% 20% 15% Cowen Estimate 10% 5% 0% (5%) (10%) (15%) (20%) (25%) 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 E E E E 13 13 13 13 1Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2Q 4Q 1Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Source: Company reports, Cowen and Company estimates. 4Q12 prod. benefits from $75M in long term deferreds from long-term deals, and from $80M in invoice duration increases. February 24, 2012 3
  • 4. Salesforce.comApplication Software Company Valuation ($M, except per share data) As of 02/23/12 PF CY12E Stock Market PF CY12E PE / Ent. PF CY12E CY12E EBITDA EV/ Growth CY12 FCF CY12 Op Ticker Rating FYE Price Value EPS P/E Growth Growth Value Rev EV/Rev Growth FCFF EV/FCFF Growth EBITDA Yield Margin Adobe Systems ADBE 1 Nov $32.97 $16,363 $2.44 14x 6% 2.1x $14,965 $4,411 3.4x 7% $1,338 11x 0% $1,843 8x 5% 8.2 % 37.5 % JDA Software Grp JDAS NC Dec $27.20 $1,157 $2.34 12x 8% 1.5x $1,136 $713 1.6x 6% N/A NM N/A $195 6x 9% N/A 23.0 % Manhattan Assoc. MANH NC Dec $46.89 $970 $2.53 19x 14 % 1.4x $872 $367 2.4x 11 % $53 16x 6% $87 10x 19 % 5.5 % 21.9 % Microsoft * MSFT 1 Jun $31.37 $263,218 $2.84 11x 8% 1.4x $222,957 $76,638 2.9x 7% $26,112 9x (2%) $31,954 7x 7% 9.9 % 37.6 % MicroStrategy MSTR NC Dec $138.35 $1,508 $3.07 45x 71 % 0.6x $1,308 $638 2.0x 13 % $60 22x 172 % $64 20x 77 % 4.0 % 6.1 % Oracle ORCL 2 May $28.81 $147,594 $2.47 12x 9% 1.3x $131,360 $38,449 3.4x 4% $12,797 10x 1% $18,063 7x 5% 8.7 % 46.1 % QADA 1 Jan $14.00 15x QAD ** $231 $0.95 9% 1.6x $172 $256 0.7x 5% $26 7x 12 % $28 6x 9% 11.3 % 9.0 % QADB 1 Jan $13.81 15x SAP + SAP 3 Dec $66.64 $79,302 $4.05 16x 8% 2.1x $76,580 $20,644 3.7x 9% $4,832 16x 9% $7,722 10x 9% 6.1 % 33.1 % Perpetual license vendors Median 15x 9% 1.4x 2.4x 7% 13x 7% 7x 9% 7.4 % 23.0 % High 45x 71 % 2.1x 3.7x 13 % 22x 172 % 20x 77 % 11.3 % 46.1 % Low 11x 8% 0.6x 0.7x 4% 7x (2%) 6x 5% 4.0 % 6.1 % Ariba ARBA 1 Sep $29.42 $2,887 $1.00 30x 19 % 1.5x $2,664 $545 4.9x 18 % $70 38x 73 % $127 21x 28 % 2.4 % 20.1 % Aspen Technology AZPN 1 Jun $21.47 $2,067 $0.05 NM NM NM $1,959 $263 7.4x 34 % $88 22x 28 % ($5) NM NM 4.2 % 1.9 % Concur Tech CNQR NC Sep $58.96 $3,214 $0.91 65x 12 % 5.5x $2,987 $464 6.4x 27 % $47 64x 12 % $109 27x 15 % 1.4 % 18.7 % Constant Contact CTCT 1 Dec $29.99 $919 $0.89 34x 31 % 1.1x $780 $251 3.1x 18 % $22 35x (6%) $46 17x 28 % 2.4 % 11.3 % DealerTrack TRAK 1 Dec $28.54 $1,228 $1.09 26x 11 % 2.4x $1,150 $383 3.0x 10 % $68 17x (19%) $85 14x 14 % 5.6 % 18.9 % Intuit INTU 1 Jul $58.68 $17,956 $3.09 19x 15 % 1.2x $17,496 $4,393 4.0x 10 % $836 21x 12 % $1,626 11x 9% 4.7 % 33.2 % Kenexa KNXA 1 Dec $29.02 $810 $1.03 28x 24 % 1.2x $712 $357 2.0x 24 % $32 22x (2%) $57 12x 20 % 4.0 % 10.7 % NetSuite N NC Dec $47.00 $3,190 $0.21 NM 40 % NM $3,049 $299 10.2x 27 % $38 80x 41 % $29 NM 26 % 1.2 % 5.8 % Red Hat * RHT 2 Feb $48.90 $9,444 $1.13 43x 11 % 4.1x $8,636 $1,250 6.9x 19 % $335 26x 5% $357 24x 16 % 3.5 % 25.3 % Salesforce.com CRM 3 Jan $131.77 $18,689 $1.60 82x 22 % 3.7x $17,738 $2,906 6.1x 32 % $412 43x 19 % $534 33x 36 % 2.2 % 12.6 % Taleo TLEO NC Dec $45.69 $1,908 $1.12 41x 9% 4.3x $1,792 $380 4.7x 17 % $42 43x 141 % $73 25x (3%) 2.2 % 14.0 % Subscription vendors Median 34x 17 % 2.4x 4.9x 19 % 35x 12 % 21x 18 % 2.4 % 14.0 % High 82x 40 % 5.5x 10.2x 34 % 80x 141 % 33x 36 % 5.6 % 33.2 % Low 19x 9% 1.1x 2.0x 10 % 17x (19%) 11x (3%) 1.2 % 1.9 % All apps Median 26x 12 % 1.5x 3.6x 15 % 22x 12 % 13x 15 % 4.0 % 18.8 % High 82x 71 % 5.5x 10.2x 34 % 80x 172 % 33x 77 % 11.3 % 46.1 % Low 11x 8% 0.6x 0.7x 4% 7x (19%) 6x (3%) 1.2 % 1.9 % Rating system: 1 = Outperform, 2 = Neutral, 3 = Underperform, NC = not covered by Cowen. Restd = Restricted. Estimates are current First Call Consensus estimates when available, Cowen ests provided otherwise. * Covered by Gregg Moskowitz; ests from First Call Consensus ** QAD figures are for the composite of QAD Class A and QAD Class B shares where applicable + SAP financials converted at a rate of $1.3245/Euro Source: Cowen and Company, Company Reports, First Call Consensus Estimates. QAD estimates are Cowen estimates. 4 February 24, 2012
  • 5. Salesforce.comPro Forma P&L ($M, except per share data) FY10A FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A 1Q13E 2Q13E 3Q13E 4Q13E FY13E Apr-11 Jul-11 Nov-11 Jan-12 Apr-12 Jul-12 Nov-12 Jan-13 Sub and support revenues $1,209.5 $1,551.1 $473.5 $509.3 $549.2 $594.3 $2,126.2 $636.2 $659.9 $703.1 $745.4 $2,744.6 % of total revs 92.6% 93.6% 93.9% 93.3% 94.0% 94.0% 93.8% 93.8% 92.9% 93.3% 93.5% 93.4% Profl services & other revenues 96.1 106.0 30.9 36.7 35.1 37.6 140.3 41.9 50.4 50.6 51.4 194.3 % of total revs 7.4% 6.4% 6.1% 6.7% 6.0% 6.0% 6.2% 6.2% 7.1% 6.7% 6.5% 6.6% Total revenues $1,305.6 $1,657.1 $504.4 $546.0 $584.3 $631.9 $2,266.5 $678.1 $710.3 $753.7 $796.8 $2,938.9 Cost of sub and support revs $138.6 $180.6 $62.5 $68.4 $74.7 $77.7 $283.2 $84.0 $87.6 $94.6 $97.9 $364.1 % of sub and support revs 11.5% 11.6% 13.2% 13.4% 13.6% 13.1% 13.3% 13.2% 13.3% 13.5% 13.1% 13.3% Cost of profl services 98.8 115.6 27.8 31.8 32.3 36.3 128.1 37.6 40.5 45.2 49.8 173.1 % of profl svc and other revs 102.7% 109.0% 90.2% 86.5% 92.0% 96.4% 91.3% 89.7% 80.4% 89.3% 96.9% 89.1% Total cost of revs $237.3 $296.2 $90.3 $100.2 $107.0 $113.9 $411.4 $121.6 $128.1 $139.8 $147.7 $537.2 Gross profit $1,068.2 $1,360.9 $414.0 $445.8 $477.3 $518.0 $1,855.2 $556.5 $582.2 $613.9 $649.1 $2,401.7 Gross margin 81.8% 82.1% 82.1% 81.7% 81.7% 82.0% 81.9% 82.1% 82.0% 81.5% 81.5% 81.7% Research and development $118.8 $169.0 $57.5 $62.2 $63.9 $65.9 $249.5 $70.9 $71.5 $73.6 $74.4 $290.4 % of revs 9.1% 10.2% 11.4% 11.4% 10.9% 10.4% 11.0% 10.5% 10.1% 9.8% 9.3% 9.9% Marketing and sales 565.5 735.6 230.7 255.9 275.4 291.9 1,053.9 328.6 342.3 364.3 375.6 1,410.8 % of revs 43.3% 44.4% 45.7% 46.9% 47.1% 46.2% 46.5% 48.5% 48.2% 48.3% 47.1% 48.0% General and administrative 168.6 218.8 70.8 70.2 72.7 76.6 290.3 81.3 79.7 84.7 89.0 334.7 % of revs 12.9% 13.2% 14.0% 12.9% 12.4% 12.1% 12.8% 12.0% 11.2% 11.2% 11.2% 11.4% Total operating expenses $852.8 $1,123.3 $359.0 $388.3 $412.0 $434.4 $1,593.7 $480.8 $493.5 $522.6 $539.0 $2,035.9 % of revs 65.3% 67.8% 71.2% 71.1% 70.5% 68.7% 70.3% 70.9% 69.5% 69.3% 67.6% 69.3% Pro forma operating income $215.4 $237.6 $55.1 $57.5 $65.3 $83.6 $261.5 $75.7 $88.7 $91.3 $110.1 $365.8 Operating margin 16.5% 14.3% 10.9% 10.5% 11.2% 13.2% 11.5% 11.2% 12.5% 12.1% 13.8% 12.4% Pro forma adjustments $100.1 $140.1 $57.9 $73.3 $75.4 $90.0 $296.6 $99.0 $109.8 $109.6 $128.4 $446.8 One time gains (charges) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 GAAP operating income $115.3 $97.5 ($2.8) ($15.7) ($10.2) ($6.4) ($35.1) ($23.3) ($21.1) ($18.3) ($18.3) ($81.0) GAAP operating margin 8.8% 5.9% -0.6% -2.9% -1.7% -1.0% -1.5% -3.4% -3.0% -2.4% -2.3% -2.8% EBITDA ** $265.4 $309.1 $83.4 $95.5 $105.9 $126.8 $411.5 $122.6 $135.8 $139.3 $158.9 $556.6 EBITDA margin 20.3% 18.7% 16.5% 17.5% 18.1% 20.1% 18.2% 18.1% 19.1% 18.5% 19.9% 18.9% Net interest income/(expense) 29.1 31.9 7.1 4.0 4.0 3.4 18.6 3.8 4.6 5.4 6.2 20.0 Other income (1.3) (6.0) (0.8) (3.2) 0.0 (0.5) (4.5) (0.4) (0.2) (0.2) (0.2) (1.0) Pretax income $143.1 $123.4 $3.5 ($15.0) ($6.1) ($3.4) ($21.0) ($19.9) ($16.7) ($13.1) ($12.3) ($62.0) GAAP tax 57.7 34.6 0.3 (13.4) (5.1) (3.5) (21.7) (0.7) (2.7) (2.3) (1.9) (7.6) GAAP Tax rate 40.5% 33.2% 32.1% 75.9% 57.6% 45.9% 65.3% 2.8% 11.9% 12.0% 9.8% 8.8% Minority interest (4.0) (5.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 GAAP net income $80.7 $64.5 $0.5 ($4.3) ($3.8) ($4.1) ($11.6) ($24.2) ($20.0) ($16.8) ($17.4) ($78.4) Net margin 6.2% 3.9% 0.1% (0.8%) (0.6%) (0.6%) (0.5%) (3.6%) (2.8%) (2.2%) (2.2%) (2.7%) GAAP EPS $0.63 $0.47 $0.00 ($0.03) ($0.03) ($0.03) ($0.08) ($0.18) ($0.14) ($0.12) ($0.12) ($0.55) Pro forma pretax income 243.3 263.5 61.4 58.3 69.3 86.6 275.6 79.1 93.1 96.5 116.1 384.8 Pro forma tax 92.3 92.1 21.5 15.2 20.3 25.0 82.0 30.1 35.4 36.7 44.1 146.3 Tax rate 37.9% 35.0% 35.1% 26.1% 29.3% 28.8% 29.7% 38.1% 38.0% 38.0% 38.0% 38.0% Pro forma net income $147.0 $166.1 $39.9 $43.1 $49.0 $61.6 $193.6 $49.0 $57.7 $59.8 $72.0 $238.5 Net margin 11.3% 10.0% 7.9% 7.9% 8.4% 9.8% 8.5% 7.2% 8.1% 7.9% 9.0% 8.1% Fully-diluted shares out 128.1 136.6 141.1 143.5 142.2 141.8 142.3 145.0 148.0 150.5 153.5 149.0 Pro forma EPS * $1.15 $1.22 $0.28 $0.30 $0.34 $0.43 $1.36 $0.34 $0.39 $0.40 $0.47 $1.60 Y/Y Analysis Sub and support revenues 22.8% 28.2% 35.0% 38.0% 36.3% 38.7% 37.1% 34.4% 29.6% 28.0% 25.4% 29.1% Profl services & other revenues 4.2% 10.3% 18.2% 44.5% 34.2% 32.9% 32.4% 35.8% 37.2% 44.2% 36.5% 38.5% Total revenues 21.3% 26.9% 33.8% 38.4% 36.2% 38.3% 36.8% 34.4% 30.1% 29.0% 26.1% 29.7% Cost of sub and support revs 19.4% 30.3% 59.0% 63.2% 57.0% 49.7% 56.8% 34.4% 28.1% 26.6% 26.1% 28.5% Cost of profl services 5.7% 17.0% 1.1% 10.3% 15.0% 16.3% 10.9% 35.1% 27.5% 40.1% 37.3% 35.1% Total cost of revs 13.3% 24.8% 35.2% 41.6% 41.5% 37.2% 38.9% 34.6% 27.9% 30.7% 29.6% 30.6% Gross profit 23.2% 27.4% 33.6% 37.8% 35.0% 38.6% 36.3% 34.4% 30.6% 28.6% 25.3% 29.5% Research and development 32.4% 42.3% 59.5% 60.0% 47.4% 29.9% 47.6% 23.4% 14.9% 15.3% 12.8% 16.4% Marketing and sales 13.5% 30.1% 41.0% 50.4% 46.1% 36.9% 43.3% 42.4% 33.8% 32.3% 28.7% 33.9% General and administrative 29.5% 29.8% 46.7% 31.8% 30.8% 24.3% 32.7% 14.8% 13.5% 16.5% 16.2% 15.3% Total operating expenses 18.7% 31.7% 44.8% 48.1% 43.3% 33.4% 41.9% 33.9% 27.1% 26.8% 24.1% 27.7% Pro forma operating income 44.5% 10.3% (11.2%) (6.3%) (1.1%) 73.5% 10.1% 37.4% 54.2% 39.9% 31.7% 39.9% EBITDA ** 49.8% 16.5% 10.2% 22.4% 25.0% 79.1% 33.1% 46.9% 42.3% 31.6% 25.4% 35.3% Pretax income 67.2% (13.8%) (90.5%) (142.9%) (113.9%) (149.8%) (117.0%) (662.3%) NM NM NM NM Pro forma net income 74.4% 13.0% (0.1%) 11.2% 10.5% 43.1% 16.6% 22.8% 33.9% 22.0% 16.8% 23.2% Pro forma EPS * 70.5% 6.0% (6.4%) 4.0% 6.5% 41.5% 11.9% 19.5% 29.8% 15.2% 7.9% 17.7% Q/Q Analysis Sub and support revenues 10.5% 7.6% 7.8% 8.2% 7.1% 3.7% 6.5% 6.0% Profl services & other revenues 8.9% 19.0% (4.5%) 7.3% 11.3% 20.3% 0.4% 1.6% Total revenues 10.4% 8.3% 7.0% 8.2% 7.3% 4.7% 6.1% 5.7% Cost of sub and support revs 20.5% 9.4% 9.2% 4.0% 8.2% 4.3% 8.0% 3.5% Cost of profl services (10.8%) 14.2% 1.6% 12.5% 3.6% 7.7% 11.6% 10.2% Total cost of revs 8.8% 10.9% 6.8% 6.5% 6.7% 5.3% 9.1% 5.7% Gross profit 10.8% 7.7% 7.1% 8.5% 7.4% 4.6% 5.4% 5.7% Research and development 13.2% 8.3% 2.6% 3.3% 7.5% 0.8% 2.9% 1.1% Marketing and sales 8.2% 10.9% 7.6% 6.0% 12.6% 4.2% 6.4% 3.1% General and administrative 14.9% (0.8%) 3.6% 5.3% 6.2% (2.0%) 6.3% 5.1% Total operating expenses 10.2% 8.2% 6.1% 5.4% 10.7% 2.6% 5.9% 3.1% Pro forma operating income 14.3% 4.4% 13.5% 28.1% (9.5%) 17.2% 2.9% 20.6% EBITDA ** 17.9% 14.4% 10.9% 19.7% (3.3%) 10.8% 2.6% 14.1% Pretax income (48.0%) NM NM NM NM NM NM NM Pro forma net income (7.4%) 8.0% 13.8% 25.7% (20.5%) 17.8% 3.6% 20.4% Pro forma EPS * (7.9%) 6.2% 14.8% 26.1% (22.2%) 15.4% 1.9% 18.0% * - Pro forma EPS excludes revenue writedown, stock compensation, one-time gains and charges, and amortization of intangibles. ** - EBITDA excludes stock compensation. Source: Company reports, Cowen and Company estimates. February 24, 2012 5
  • 6. Salesforce.comBalance Sheet ($M) 4Q10A 4Q11A 1Q12A 2Q12A 3Q12A 4Q12A Jan-10 Jan-11 Apr-11 Jul-11 Nov-11 Jan-12 Cash and equivalents $1,011.3 $424.3 $664.6 $449.8 $503.0 $607.3 Short-term marketable securities 230.7 72.7 99.2 127.6 142.9 170.6 Accounts receivable, net 321.0 426.9 270.8 342.4 312.3 683.7 Deferred commissions (LT+ST) 75.5 67.8 112.4 113.7 120.4 176.6 Deferred income taxes 40.1 27.5 23.8 33.9 38.8 31.8 Prepaid expenses and other current assets 55.7 55.7 63.9 95.0 79.4 80.3 Total current assets $1,734.3 $1,074.9 $1,234.8 $1,162.4 $1,196.9 $1,750.4 Marketable securities, noncurrent $485.1 $910.6 $758.4 $709.3 $650.8 $669.3 Fixed assets, net 89.7 387.2 446.3 470.1 504.8 527.9 Deferred income taxes, noncurrent 27.6 48.8 47.4 64.2 70.9 87.6 Capitalized software, net 34.8 41.2 124.7 198.3 199.4 188.4 Goodwill 49.0 396.1 406.9 671.6 732.1 785.4 Other assets, net 39.8 104.4 109.6 145.5 156.4 155.1 Total assets $2,460.2 $2,963.2 $3,128.1 $3,421.3 $3,511.3 $4,164.2 Accounts payable $14.8 $18.1 $17.0 $22.3 $28.3 $33.3 Accrued expenses and other current liabilities 194.7 345.1 296.0 389.9 409.2 502.4 Income taxes payable 8.4 Deferred revenue 690.2 913.2 893.9 917.8 905.1 1,291.6 Current debt 478.4 484.1 490.1 496.1 Total current liabilities $908.1 $1,276.5 $1,685.2 $1,814.1 $1,832.6 $2,323.5 Debt 450.2 472.5 Income taxes payable, noncurrent 17.6 18.5 20.3 34.8 30.2 37.3 Long-term lease liabilities and other 13.5 25.5 49.1 46.1 52.6 48.7 Deferred revenue, noncurrent 14.2 21.7 21.2 17.5 12.8 88.7 Total liabilities $1,403.5 $1,814.7 $1,775.8 $1,912.4 $1,928.1 $2,498.1 Minority interest 12.9 96.6 90.8 84.8 78.7 Shareholders (deficit) equity 1,056.7 1,276.5 1,255.6 1,418.1 1,498.4 1,587.4 Total liabilities and shareholders equity $2,460.2 $2,963.2 $3,128.1 $3,421.3 $3,511.3 $4,164.2 Source: Company reports, Cowen and Company. 6 February 24, 2012
  • 7. Salesforce.comCash Flow ($M) FY10A FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A FY13E Apr-11 Jul-11 Nov-11 Jan-12 Net income $80.7 $64.4 $0.5 ($4.3) ($3.8) ($4.1) ($11.6) ($78.4) Minority interest 4.0 5.3 0.0 0.0 Depreciation and amortization 53.2 75.7 29.6 40.2 41.6 45.9 157.3 189.6 Loss (gain) on investment 0.0 0.0 0.0 0.0 Amort of debt discount 0.7 19.6 2.3 2.1 2.1 3.9 10.3 24.0 Amort of deferred commissions 63.9 80.2 24.7 24.9 26.9 30.7 107.2 147.4 Change in def income tax valu. allow. 0.0 0.0 0.0 0.0 Expense of stock-based comp 88.9 120.4 47.6 54.6 57.0 70.1 229.3 368.0 Tax benefits from stock option (51.5) (36.0) (2.0) (2.1) (6.9) 5.0 (6.0) (139.9) Changes in assets and liabilities Accounts receivable ($54.5) ($102.5) $156.1 ($66.1) $30.1 ($365.1) ($244.9) ($247.2) Deferred commissions (82.3) (121.2) (20.5) (26.1) (33.6) (86.9) (167.2) (188.8) Prepd exp & other curr assets (3.9) 2.0 (9.4) (9.6) 9.0 (0.8) (10.7) (21.0) Other assets (1.4) (9.8) (2.7) (1.9) 4.7 2.8 2.9 0.0 Accounts payable (1.6) 1.2 (1.1) 4.1 5.9 3.7 12.6 9.8 Accrued exp and other curr liab 64.5 128.4 (65.6) 47.6 13.1 72.6 67.7 115.6 Income taxes 0.0 3.6 0.0 0.0 Deferred revenue 110.3 227.7 (19.8) 19.5 (17.4) 462.5 444.7 556.5 Cash flow from operations $270.9 $459.1 $139.5 $82.9 $128.7 $240.3 $591.5 $735.6 Capital expenditures (53.9) (373.3) (28.3) (50.5) (41.3) (51.2) (171.3) (231.4) Business combination, net of cash acquired (12.0) (403.3) (13.3) (285.3) (66.1) (57.9) (422.7) 0.0 Purchase of subsidiary stock 0.0 (16.9) (5.4) (7.8) (21.5) (2.6) (37.4) 0.0 Change in marketable securities (312.7) (270.3) 126.5 21.7 39.2 (45.6) 141.7 0.0 Investing cash flow ($378.6) ($1,063.8) $79.4 ($321.9) ($89.8) ($157.3) ($489.7) ($231.4) Proceeds from (purchase of) stock 0.0 (170.7) 0.0 0.0 Proceeds from option exercises 93.9 160.4 32.3 42.3 15.8 26.2 116.6 0.0 Tax benefits from employee stock plans 51.5 36.0 2.0 2.1 6.9 (5.0) 6.0 139.9 Borrowings 440.6 0.0 0.0 0.0 Principal pmts on capital lease (8.1) (10.4) (3.6) (10.5) (7.7) (8.7) (30.5) 0.0 Sub stock offering/warrants/contingencies 59.3 0.0 (2.8) (13.4) (16.2) 0.0 Financing cash flow $637.2 $15.3 $28.0 $20.4 $15.0 $12.5 $75.9 $139.9 Effects of forex rates (2.0) 2.4 (6.5) 3.8 (0.7) 8.8 5.3 0.0 Net change in cash and equivalents $527.5 ($587.0) $240.3 ($214.8) $53.2 $104.3 $183.0 $644.2 Cash and equivalents BOP 483.8 1,011.3 424.3 664.6 449.8 503.0 424.3 607.3 Cash and equivalents EOP $1,011.3 $424.3 $664.6 $449.8 $503.0 $607.3 $607.3 $1,251.4 Marketable securites $230.7 $72.7 $99.2 $127.6 $142.9 $170.6 $170.6 $170.6 Cash & marketable securities 1,242.0 497.0 763.8 577.4 645.8 777.9 777.9 1,422.0 Free cash flow to equity (FCFE) $217.0 $85.7 $111.2 $32.5 $87.4 $189.2 $420.2 $504.2 Y/Y Change 28.8% -60.5% -15.1% -32.7% 111.8% NM 390.0% 20.0% Free cash flow to firm (FCFF) $217.0 $85.7 $111.2 $32.5 $87.4 $189.2 $420.2 $504.2 Y/Y Change 28.8% -60.5% -15.1% -32.7% 111.8% NM 390.0% 20.0% CY FCFE $96.7 $392.3 $497.2 N/A Y/Y Change -54.6% 305.8% 26.7% N/A CY FCFF $96.7 $392.3 $497.2 N/A Y/Y Change -54.6% 305.8% 26.7% N/A COWEN SUMMARY: (a) Cash Flow from Operations $270.9 $459.1 $139.5 $82.9 $128.7 $240.3 $591.5 $735.6 Capital Spending (53.9) (373.3) (28.3) (50.5) (41.3) (51.2) (171.3) (231.4) Owners Cash Flow $217.0 $85.7 $111.2 $32.5 $87.4 $189.2 $420.2 $504.2 Financing $637.2 $15.3 $28.0 $20.4 $15.0 $12.5 $75.9 $139.9 Non-Recurring Items (326.7) (957.6) 101.2 (267.7) (49.2) (97.4) (313.1) 0.0 Beginning Cash $483.8 $1,011.3 $424.3 $664.6 $449.8 $503.0 $424.3 $607.3 Change in Cash 527.5 (856.5) 240.3 (214.8) 53.2 104.3 183.0 644.2 Ending Cash $1,011.3 $154.8 $664.6 $449.8 $503.0 $607.3 $607.3 $1,251.4 Ending Cash Equivalents 230.7 72.7 99.2 127.6 142.9 170.6 170.6 170.6 Ending Cash & Equivalents $1,242.0 $227.5 $763.8 $577.4 $645.8 $777.9 $777.9 $1,422.0 (a) Excludes non-recurring items Source: Company reports, Cowen and Company estimates. February 24, 2012 7
  • 8. Salesforce.com Addendum STOCKS MENTIONED IN IMPORTANT DISCLOSURESTicker Company NameADBE Adobe SystemsARBA AribaAZPN Aspen TechnologyCRM Salesforce.comCTCT Constant ContactINTU IntuitKNXA KenexaMSFT MicrosoftORCL OracleQADA QAD - AQADB QAD - BRHT Red HatSAP SAP AG (ADR)TRAK DealerTrack Holdings ANALYST CERTIFICATIONEach author of this research report hereby certifies that (i) the views expressed in the research report accurately reflecthis or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensationwas, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report. IMPORTANT DISCLOSURESCowen and Company, LLC and or its affiliates make a market in the stock of ADBE, ARBA, AZPN, CRM, CTCT, INTU, KNXA,MSFT, ORCL, QADA, QADB, RHT, SAP, TRAK securities.Cowen and Company, LLC and/or its affiliates managed or co-managed a public offering of KNXA within the past twelvemonths.Cowen and Company, LLC and/or its affiliates received in the past 12 months compensation for investment bankingservices from KNXA.KNXA is or was in the past 12 months a client of Cowen and Company, LLC; during the past 12 months, Cowen andCompany, LLC provided IB services.QADA, QADB is or was in the past 12 months a client of Cowen and Company, LLC; during the past 12 months, Cowen andCompany, LLC provided Non IB services.Cowen and Company, LLC has received compensation in the past 12 months for products or services other thaninvestment banking from QADA, QADB, KNXA.KNXA has been client(s) of Cowen and Company, LLC in the past 12 months.Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firmsinvestor clients. Individual compensation determinations for research analysts, including the author(s) of this report, arebased on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources,including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based onspecific investment banking transactions. DISCLAIMERThis research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printedform. Research distributed electronically is available simultaneously to all Cowen and Company, LLC clients. Allpublished research, including required disclosures, can be obtained on the Firm’s client website,www.cowenresearch.com.8 February 24, 2012
  • 9. Salesforce.comFurther information on any of the above securities may be obtained from our offices. This report is published solely forinformation purposes, and is not to be construed as an offer to sell or the solicitation of an offer to buy any security inany state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company,LLC, the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purportto be a complete statement or summary of the available data. Any opinions expressed herein are statements of ourjudgment on this date and are subject to change without notice.Notice to UK Investors: This publication is produced by Cowen and Company, LLC, which is regulated in the UnitedStates by FINRA and is disseminated in the United Kingdom by Cowen International Limited ("CIL"). In the United Kingdom,‘Cowen and Company’ is a Trading Name of CIL. It is communicated only to persons of a kind described in Articles 19 and49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted toany other person without the consent of CIL.Copyright, User Agreement and other general information related to this report© 2012 Cowen and Company, LLC. Member NYSE, FINRA and SIPC. All rights reserved. This research report is prepared forthe exclusive use of Cowen clients and may not be reproduced, displayed, modified, distributed, transmitted or disclosed,in whole or in part, or in any form or manner, to others outside your organization without the express prior writtenconsent of Cowen. Cowen research reports are distributed simultaneously to all clients eligible to receive such researchprior to any public dissemination by Cowen of the research report or information or opinion contained therein. Anyunauthorized use or disclosure is prohibited. Receipt and/or review of this research constitutes your agreement not toreproduce, display, modify, distribute, transmit, or disclose to others outside your organization the contents, opinions,conclusion, or information contained in this report (including any investment recommendations, estimates or pricetargets). All Cowen trademarks displayed in this report are owned by Cowen and may not be used without its priorwritten consent.Cowen and Company, LLC. New York (646) 562-1000 Boston (617) 946-3700 San Francisco (415) 646-7200Chicago (312) 577-2240 Cleveland (440) 331-3531 Atlanta (866) 544-7009 Dallas (214) 978-0107 London(affiliate) 44-207-071-7500 Geneva (affiliate) 41-22-707-6900 COWEN AND COMPANY RATING DEFINITIONS (a)Rating DefinitionOutperform (1) Stock expected to outperform the S&P 500Neutral (2) Stock expected to perform in line with the S&P 500Underperform (3) Stock expected to underperform the S&P 500(a) Assumptions: Time horizon is 12 months; S&P 500 is flat over forecast period. COWEN AND COMPANY RATING ALLOCATION (a) Pct of companies under Pct for which Investment Banking servicesRating coverage with this rating have been provided within the past 12 monthsBuy (b) 52.3% 8.4%Hold (c) 44.9% 2.0%Sell (d) 2.7% 0.0%(a) As of 12/31/2011. (b) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLCs rating definitions (see above). (c)Corresponds to "Neutral" as defined in Cowen and Company, LLCs ratings definitions (see above). (d) Corresponds to "Underperform" as defined inCowen and Company, LLCs ratings definitions (see above). Note: "Buy," "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in itsratings system and should not be construed as investment options. Rather, these ratings terms are used illustratively to comply with NASD and NYSEregulations.To view price charts, please see http://pricecharts.cowen.com/pricechart.asp or call 1-800-221-5616 February 24, 2012 9

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