By anyone’s standards Salesforce has had a very good quarter in difficult economic times, reporting a growth in revenues over the quarter of 28% to US$ 893 million, just US$ 100 million shy of its first US$ 1 billion quarter, which CEO Marc Benioff says is on the way.
Even still, the markets weren’t happy with this and dumped on Salesforce, which resulted in a drop in the price of its shares by 6.7 percent, the single biggest daily drop in its price since May 2012.
However, there is no panic here and Benioff was unabashed about the quarter during the earnings call, which he described as “another great quarter” even if earnings didn’t seem great to those that don’t know the company.
Overall, Salesforce lost US$ 67.7 million in the first quarter, compared with a net loss of US$ 19.5 million for the same period as the enterprises that would normally be spending on the kind of customer management tools that Salesforce sells, are holding off on new software investments.
Salesforce, though, is not alone in suffering from the global economic turbulence, with other vendors in the same space like SAP, Tibco and Oracle all suffering from slack demand as enterprises focus on integrating technologies they bought in the small spending spree of 2010.
But there’s more at play when looking at Salesforce than just a slow down in enterprise spending. We already noted this week when reporting the HP results that in terms of overall financial health, there is not much point comparing one quarter with another.
What is far more important is confidence, the company’s strategic plan and where that plan is likely to leave the company in coming years. In the case of Salesforce, it has been expanding its horizons. Over the past couple of years it has bought both BuddyMedia and Radian 6, giving it the final pieces to launch its Marketing Cloud, which it did last year.
The potential for the Marketing Cloud is huge, but after spending more than US$ 1 billion on buying them, it is still only creating around US$ 100 million in annual revenues.
When we're in quarter one, quarter two or even quarter five or six after buying a small company, that's not when we're [judging] whether it's a success or a failure…It's year three or four when we can really judge it. In our industry, people overestimate what you can do in a year and underestimate what you can do in a decade…,” Benioff said during the call.
And there’s others buys that still haven’t produced the figures Benioff is looking for. Heroku was bought in January 2011 and still hasn’t achieved the US$ 100 million revenue mark while online marketing acquisitions are only 10% of targets.
But there is also the day-to-day business of Salesforce. Over the quarter, the amount of services invoiced to customers rose by 17% to US$ 762.8 million, an increase of 17% on the same quarter last year.
Billings, the amount invoiced to customers during the quarter, grew 17% to US$ 762.8 million, compared with the US$ 752.6 million average analysts’ estimate. Analysts calculate the billings, which Salesforce doesn’t directly report.
There is also a new version of Salesforce.com due in the third quarter that will include a whole pile of new features for marketing and human resources with a number of them originating in the Rypple acquisition from last year.
How long it takes Salesforce to achieve the revenues it wants from each of the individual technology areas it operates in remains to be seen, but there is pressure from the markets to perform and meet financial expectations.
Title image courtesy of AshDesign (Shutterstock)
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