Salesforce’s raised outlook reassures, lifts shares

Salesforce.com raised its fiscal next year sales outlook after reporting better-than-expected revenue and earnings on Thursday, reassuring jittery investors that the cloud software company will continue its red-hot growth.

The company raised its full-year revenue guidance to between US$4 billion and US$4.025 billion, in line with Wall Street expectations of roughly US$4 billion.

The forecast sent shares 8 per cent higher after the bell to US$47.

Salesforce said second-quarter revenue rose 31 per cent to US$957 million, as demand among corporate customers for cloud-based sales and marketing software remained strong.

That translated into second-quarter earnings of 9 cents a share, topping expectations of 7 cents, according to analysts polled by Thomson Reuters I/B/E/S. Salesforce said it expects earnings per share of between 32 cents and 34 cents for the full year.

For the current quarter, Salesforce said it expects to surpass US$1 billion in quarterly revenue for the first time in its 14-year history.

“No other software company of our size is growing faster,” Chief Executive Marc Benioff told analysts on a conference call.

For the past four years Benioff has consistently delivered outsized revenue numbers but has spent lavishly to acquire - rather than internally develop - a new array of product offerings.

In June Benioff snapped up social marketing company ExactTarget for US$2.5 billion, a significant bet that reflects his belief that consumer brands will increasingly want software to help them advertise on social media channels like Twitter. The deal for ExactTarget closed in July and helped boost Salesforce’s revenue figures for the second quarter, the company said.

But the company’s shares have fluctuated wildly in recent quarters on fears that top-line growth may be losing steam despite Benioff’s heavy expenditures - and given rising competition from competitors including Oracle and SAP. One of the core questions has been how Benioff would integrate Salesforce’s recent acquisitions including ExactTarget and Buddy Media - a US$750 million deal closed in mid-last year - into a comprehensive marketing suite.

Those fears have been assuaged for now, said RW Baird analyst Steve Ashley.

“The Marketing Cloud has been a new unknown, and people were wondering is it going to successfully open a new market?” Ashley said. “Certainly people came away today feeling encouraged that it’s proceeding as expected.”

Salesforce’s costs remained high. Research and development costs for the quarter rose 36 per cent to US$161 million, while sales and marketing costs rose 26 per cent to US$480.6 million.

In June, the company reiterated its emphasis on selling its new social marketing tools when it hired Keith Block, a 26-year Oracle veteran, to become a corporate president leading global sales. It also hired Tony Fernicola, another top sales executive from Oracle.

Even though he declined to answer an analyst question about the performance of Buddy Media, another costly acquisition, Benioff said he intended to make ExactTarget a centrepiece of Salesforce’s growth strategy. The Indiana-based company makes software that lets marketers target specific customers with email and social media campaigns.

Salesforce raised ExactTarget’s expected contribution to the overall topline by US$20 million to roughly US$140 million for the fiscal year.

Scott Dorsey, the ExactTarget chief executive, will now oversee Salesforce’s marketing products, Benioff said.

Benioff told analysts Thursday that he was hoping to strike an alliance with SAP similar to the one forged with Oracle in June. That partnership shocked Silicon Valley, given the intense competition between the firms and personal rivalry between Benioff and his one-time boss, Oracle Chief Executive Larry Ellison.

The nine-year deal allowed Oracle and Salesforce to closely integrate their cloud software so that their corporate customers would not have to choose one product line or the other for every application.

“Certainly it’s my hope that we will develop a similar alliance with SAP,” Benioff said. “It’s in the interest of their customers and our customers that Salesforce works well with Oracle, SAP, and even works well with Microsoft because our customers have these existing investments.”

Reuters