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Why Salesforce Could Become More Valuable

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Nov. 25 2015, Updated 5:06 p.m. ET

Increased adoption of SaaS will benefit Salesforce

Software-as-a-service (or SaaS) is expected to grow at a compound annual growth rate (or CAGR) of 33%, whereas the cloud market as a whole is expected to grow at a CAGR of 24%. Though Amazon (AMZN), Microsoft (MSFT), Google (GOOG), and IBM (IBM) collectively command 54% of the cloud infrastructure market, as reported by Synergy Research, Salesforce dominates the platform-as-a-service (or PaaS) and SaaS space. As a result, Salesforce is expected to benefit from significantly increased cloud and SaaS adoption trends.

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Salesforce valuation is expected to rise

With the double-digit revenue growth of Salesforce, it is quite clear that the company is executing and thriving in the near $23 billion customer relationship management (or CRM) market, according to Gartner in its May 2015 report. The CRM market is expected to reach a value of ~37 billion by 2017.

According to Joanne Correia, research vice president at Gartner, “Strong demand for software as a service (SaaS) continues, with SaaS accounting for almost 47 percent of total CRM software revenue in 2014.” Considering how rapidly on-premise IT and business solutions are shifting to the cloud, and that SaaS dominates the largest segment of the cloud, Salesforce, with its leadership position in the SaaS space is all set to expand and increase its market share. This translates to more revenues and more margins, consequently benefitting its investors and shareholders.

You can invest in the PowerShares QQQ Trust (QQQ) to gain exposure to the tech sector. The ETF invests about 54% of its holdings in the technology sector.

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