Back to top

Analyst Blog

Salesforce.com Inc. (CRM - Analyst Report) reported third-quarter fiscal 2014 adjusted loss of 12 cents per share, much wider than the Zacks Consensus Estimate of a loss of 4 cents per share.

Revenues

Salesforce’s revenues of $1.08 billion not only increased 36.5% from the year-ago quarter but also surpassed the Zacks Consensus Estimate of $1.05 billion. Reported revenues also beat management’s guided range of $1.05 billion to $1.055 billion.

During the reported quarter, the company witnessed continued demand across all of its cloud solutions supported by a decline in the attrition rate and a strong performance from the sales and renewals teams. Moreover, contributions of approximately $81.0 million from ExactTarget and Pardot positively impacted revenues.

Among its business segments, revenues from Subscription and Support increased 35.6% from the year-ago quarter to $1.0 billion. Professional Services and Other revenues increased 49.7% on a year-over-year basis to $71.6 million. During the quarter, Salesforce had a number of customer wins and add-on transactions such as Vanguard, Intuit (INTU - Snapshot Report), Pfizer (PFE - Analyst Report) and Bristol-Myers (BMY - Analyst Report) to name a few.

Geographically, the company witnessed revenue growth of 41.0% in the Americas while revenues from Europe and Asia increased 46.0% and 4.0%, respectively, on a year-over-year basis.

Operating Results

Salesforce’s gross profit (including stock-based compensation but excluding amortization expenses) came in at $841.7 million, up 34.6% from the year-ago quarter. However, gross margins came in at 78.2% compared with 79.3% in the previous-year quarter.

Operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 36.3% from the year-ago quarter to $890.6 million. As a percentage of revenues, operating expenses contracted marginally (down 11 basis points) from the year-ago quarter.

Salesforce reported operating loss (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $48.9 million which widened from the year-ago loss of $27.9 million. Acquisition of ExactTarget and higher costs related to the Oracle agreement impacted operating results.

Salesforce’s net loss, including stock-based compensation but excluding all one-time items and tax, came in at $79.5 million or 12 cents, which worsened from $55.5 million or 10 cent loss reported in the year-ago quarter.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash and cash equivalents and marketable securities of $703.5 million, down from $930.0 million in the previous quarter. Accounts receivable were $604.0 million compared to $599.5 million in the prior quarter.

Total deferred revenue in the quarter was $1.73 billion, which increased 34.0% on a year-over-year basis.  Cash from operating activities was $137.9 million compared with $183.0 million in the prior quarter.

Guidance

For the fourth quarter of 2014, the company expects revenues in the range of $1.124 billion to $1.129 billion reflecting a year-over-year increase of 35.0%. The company expects its non-GAAP earnings per share in the range of 4 cents to 6 cents.

The company has raised its full fiscal-year 2014 revenues from the previous range of $4.000 billion–$4.025 billion to $4.050 billion–$4.055 billion (year-over-year increase of 33.0%). Salesforce also revised its non-GAAP earnings per share guidance from 32 cents–34 cents to 33 cents–34 cents. In addition, Salesforce also provided fiscal 2015 revenue guidance range of $5.15 billion to $5.20 billion.

Recommendation

Salesforce.com reported a mixed third-quarter 2014 results. Although loss per share was wider than the Zacks Consensus Estimate, the company’s revenues surpassed the consensus mark. Operating results were impacted by higher costs. The company has provided positive third-quarter guidance and raised its fiscal 2014 revenue and earnings guidance.

The higher number of deal wins was encouraging and so were the geographical contributions. Overall, the company’s diverse cloud offerings and the stronger spending projection by Gartner are positive. Moreover, the company’s strategic acquisitions and its synergies from them are expected to remain the long-term positives.

Although, the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent by the renewed efforts of other tech giants, such as International Business Machines, in the cloud space.

However, continued weakness in Europe, currency headwinds and increase in investments could pose challenges, going forward.

Salesforce has a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%