--Social and mobile features attracting new customers
--Strength in Europe from sales focus on U.K., France and
Germany
--Company continuing to spend heavily to grow faster than
market
(Updates throughout with executive comments.)
By Steven D. Jones and Tess Stynes
Salesforce.com Inc. (CRM) posted a fiscal third-quarter loss as
expenses jumped and it booked a charge related to a tax-valuation
allowance, although the company's top-line growth and quarterly
billings exceeded expectations.
Founded to sell sales-automation tools, Salesforce now generates
revenue from a platform of business utilities for social
networking, customer service, human resources and other functions.
Delivering the software online also makes it easier to tailor for
the new generation of mobile devices.
Chief Executive Marc Benioff told analysts on the earnings call
Tuesday that Salesforce is "bringing enterprise customers the same
development tools that are driving the explosion of consumer
apps."
As its product line expands, Salesforce is reaching deeper into
the executive ranks, selling its software services to chief
marketing officers in addition to sales and technology
managers.
"We've moved successfully I would say from being a
single-product company to a multiproduct company," said Mr.
Benioff. "And we've also moved successfully from having a
single-billion-dollar business to what will clearly be
multiple-billion-dollar businesses."
Sales in Europe rose 41% in the latest quarter over a year ago,
in contrast to many software companies that have suffered declining
sales there. Mr. Benioff said European growth came thanks to the
company's decade-long investment there and its focus on developing
customers in Europe's dominant economies in the U.K., France and
Germany.
"It has taken us a long time to get these markets online with
us, to build the distribution organizations and investing in the
marketing capabilities," said Mr. Benioff. "We're very excited
about the delivery of the European business this year."
Shares rose 1.5% after-hours trading to $148.15. The shares have
risen 44% so far this year.
San Francisco-based Salesforce.com has been growing revenue 30%
year over year, well ahead of the 25% growth rate in the sector,
and the company has invested heavily in its own technology and
acquisitions to keep growth moving ahead of the pack.
A year ago, the company began moving customers to annual billing
from quarterly and semiannual billing. That billed but unearned
revenue is booked as deferred revenue, which becomes a key
indicator of how the business is growing, but the shift in billing
cycles also created a temporary surge in deferred revenue.
For example, the company reported 41% growth in third-quarter
deferred revenue, which was down from 43% in the second quarter and
46% in the first quarter. The impact of the shift to annual billing
is moderating and management expects increases in deferred revenue
to moderate to about 20% to 30% quarterly.
"While the shift to billing will continue, we expect incremental
benefit to deferred revenue will be lower," said Graham Smith,
chief financial officer.
Superstorm Sandy caused minor disruption of service to some
customers, he said.
San Francisco-based Salesforce has been growing revenue 30% year
over year, ahead of the 25% growth rate in the sector. The company
has invested heavily in its own technology and acquisitions to keep
growth moving ahead of the pack. In June, Salesforce agreed to
acquire marketing platform Buddy Media in a cash-and-stock deal
valued at $689 million, broadening its social-media footprint.
The company added 550 employees in the third quarter, including
250 from Buddy Media.
For the year, Salesforce again raised its per-share adjusted
earnings estimate to $1.50 to $1.52 on revenue of $3.04 billion to
$3.05 billion, from its increased August estimate of $1.48 to
$1.51, and $3.03 billion to $3.04 billion.
For the current quarter, Salesforce gave a cautious view for
per-share earnings of 38 cents to 40 cents on revenue of $825
million to $830 million. Analysts polled by Thomson Reuters most
recently expected 40 cents and $830 million, respectively.
For the quarter ended Oct. 31, Salesforce.com reported a loss of
$220.3 million, or $1.55 a share, compared with a year-earlier loss
of $3.8 million, or three cents a share. Excluding stock-based
compensation, tax-valuation allowance-related charges and other
items, adjusted per-share earnings were down at 33 cents from 34
cents.
Revenue increased 35% to $788 million. Currency fluctuations
subtracted two percentage points from the growth.
Salesforce in August projected earnings of 31 cents to 32 cents
on revenue of $773 million to $777 million.
Gross margin fell to 76.4% from 78%. Operating expenses were up
41%.
Subscription and support fees, which provide the bulk of the
company's revenue, jumped 35%. Professional services and other
payments climbed 36%.
Deferred revenue--a critical measure of future revenue for its
subscription-based business model--rose 41% to $1.29 billion in the
latest quarter.
For the new fiscal year, Salesforce projected revenue of $3.8
billion to $3.85 billion. Analysts polled by Thomson Reuters
recently expected $3.83 billion. The company plans to provide
earnings guidance for the coming fiscal year when it reports its
fiscal fourth-quarter results in February.
Write to Steven D. Jones at steve-d.jones@dowjones.com and Tess
Stynes at tess.stynes@dowjones.com
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