Investors Still Like the Taste of Salesforce's Kool-Aid

Shares in Salesforce.com, the cloud-based provider of customer relationship management software, are rocking after hours on an earnings report that showed profits falling, but sales picking up–way up.

Salesforce shares soared by more than $10.19, or 7.5 percent, to $146.30 after it reported earnings that fell to $530,000, or break-even on a GAAP basis, versus $17.7 million a year ago. On a non-GAAP basis, profits decreased by 7 percent from the year-ago period to 28 cents, beating the consensus of analysts by a penny.

Why the surge in the share price amid a shrinking bottom line? Perhaps it’s a little exuberance spilling over from today’s IPO of LinkedIn. But right now Salesforce is all about the rush to the cloud, and so far it’s working. Revenues picked up by 34 percent over the year-ago period, coming in at $504 million, as the net number of paying customers rose by 5,400 to finish at 97,700. The company has added more than 20,000 customers since the end of April 2010. More subscribers equal more revenue. And at Salesforce, that’s the name of the game. There will be time for profits later, the argument goes.

In fact, things are moving so fast that the company said that it expects to finish its fiscal 2012 with $2.15 billion to $2.17 billion in sales and that it is the first cloud company to reach that level. Nestled within that guidance, it also says it expects to report a net loss of one cent to three cents a share on a GAAP basis, though that’s after accounting for one-time items like the acquisition of Radian6.

This is one of those moments when you’re expected to suspend your assumptions that companies worth investing in grow their profits. When it comes to Internet companies, this is precisely the sort of thing that tends to set off alarm bells with certain people who point to things like today’s mind-blowing IPO of LinkedIn, turning back the calendar to 2001 and repeating the word “bubble” a lot. The skeptic in me wants to wring my hands along with them.

Salesforce has taken a lot of flack for how it uses its cash. It paid a lot last year–some would say too much–to acquire Heroku, and it’s spending $278 million to buy the real estate for a new corporate campus.

Yet cash continues to pile up at Salesforce. When I last looked, it held a combined $497 million in cash and short-term investments, plus $911 million more in marketable securities, for a total of $1.4 billion. The new numbers: $786 million in cash and short-terms plus $758.5 million in marketable securities, which brings the total to north of $1.5 billion. That’s enough to fund another acquisition or two.

CNBC “Mad Money” host Jim Cramer admitted he was “drinking the Kool-Aid” that Salesforce stock seemed to be, and even said he liked the taste of it, as he listened to CEO Marc Benioff repeat his argument that the time is now for Salesforce to rush headlong into the business of luring customers away from traditional CRM software sold by companies like Oracle–ironically the place where Benioff got his start–and SAP. Yes, it tastes a little like Kool-Aid, and bubbly Kool-Aid at that. But so far the market likes how it tastes and seems to want another glass.