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Concerns Spike Ahead Of Salesforce.com's 3Q Report

These are heady times at Salesforce.com. From the outside looking in, it appears the software-as-a-service (SaaS)  pioneer can do no wrong and shareholders—particularly those on the company payroll—are cleaning up.

The stock's up more than 47 percent for the year. Sales, profits and its total subscriber base are all at record levels. And during its annual Dreamforce conference in September, the company assured customers the best was yet to come when it unveiled Force.com, the on-demand application development platform that CEO Marc Benioff said will forever change the way companies develop, design and access business software applications.

But if everything's going so well, why are some analysts giving Salesforce.com the cold shoulder just ahead of its third-quarter earnings report?

On Tuesday, Cowen & Co. analyst Peter Goldmacher reiterated his "neutral" rating on the stock, and wrote in a research note that "we view the risk/reward heading into 3Q as unfavorable," adding that "we expect the company to beat its conservative guidance and raise numbers modestly, but we believe the financials will continue to show signs of strain."

Salesforce.com is scheduled to release its third-quarter results on November 15. Analysts are expecting it to return a profit of two cents a share in the quarter on sales of roughly $190 million.

The modest expectations, derived mainly from Salesforce.com's own guidance, would only represent an eight-percent improvement from sales of $176.6 million it recorded in the second quarter and slight decline in earnings from the $3.7 million, or three cents share, it pocketed last quarter.

Obviously, there's always the possibility that Salesforce.com could deliver a stunning upside surprise, and few would bet against it.

But Goldmacher said that while the company's still growing at an impressive clip, its subscription sales and deferred sales growth rate is actually decelerating and pro forma operating margins will likely check in somewhere between 10.5 percent and 11 percent for the quarter, hardly awe-inspiring for a stock trading at such a nose-bleed valuation.

And, according to Salesforce.com's second-quarter earnings report, the company incurred sales and marketing expenses of more than $90 million in a three-month span that netted them roughly 3,000 new customers.

Clearly, Salesforce.com was and continues to spend a lot of money to ramp its sales team to meet increasing demand for its core on-demand CRM  and emerging platform-as-a-service offerings. However, few companies can afford or would even attempt to justify spending an average of more than $30,000 for each new customer acquired.

"They're buying growth," Goldmacher said in an interview with InternetNews.com. "You don't need to be anymore intellectual than that. They talk about subscribers but last time I checked, subscribers can't put braces on my kids' teeth. The flow of money is decelerating so they're spending a ton and buying growth. And they're not seeing it in the margins."