Salesforce Narrows Loss, Revs Up

Salesforce.com Inc. (CRM - Analyst Report) reported fourth-quarter fiscal 2013 adjusted loss per share of 2 cents, narrower than the Zacks Consensus Estimate of 3 cents loss per share.

Revenues

Revenues in the quarter were $834.7 million, up 32.0% from the year-ago quarter. The quarter’s result was also above the company’s guidance range of $825.0 million to $830.0 million.

Salesforce witnessed an improvement in revenues from all its business segments. Subscription and support revenue was $785.5 million, up 32.0% on a year-over-year basis, while the Professional services and other revenue was $49.2 million, up 31.0% year over year.

Geographically, the company witnessed decent revenue growth in all of its operating regions. Revenue in the Americas was up 34.0% to $583.0 million, while Europe grew 37.0% to $149 million. This apart, revenue from Asia grew by 17.0% in dollars to $103 million. Although Asian revenue grew, but the growth has been affected by slowing demand from enterprise customers in Japan.

Operating Results

Gross profit expanded 31.4% year over year to $651.3 million. Gross margin was 78.0%, down 40 basis points from the year-ago quarter.

Total operating expenses rose 33.9% year over year to $672.1 million on the back of a 50.3% rise in research and development expense (R&D), 33.0% increase in sales and marketing expense, and 23.0% rise in general and administrative expense. Continuous increase in headcount from the recent acquisitions drove the operating expenses higher.

Operating loss of $20.8 million during the quarter was more than the year-ago quarter’s loss of $6.4 million. Operating loss margin was 2.5% versus 1.0% in the prior-year quarter.

GAAP net loss in the quarter was $20.8 million or 14 cents per share compared with net loss of $4.1 million or 3 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, adjusted net loss was 2 cents per share compared with a profit of 9 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash and cash equivalents of $747.2 million, up from $605.6 million in the prior quarter. Accounts receivable increased to $872.6 million from $418.6 million in the prior quarter. Total deferred revenue in the quarter was $1.79 billion, up from $1.29 billion in the previous quarter.

Cash from operating activities was $281.6 million compared with $105.9 million in the prior quarter.

Guidance

For the first quarter of 2014, the company expects revenue in the range of $882 million to $887 million, expecting an increase of 27.0% to 28.0% year over year.

Moreover, GAAP net loss per share is expected in the range loss per share of 44 to 42 cents, while non-GAAP EPS is expected in the range of 40 to 42 cents.

For the full year 2014, revenue is expected in the range of $3.82 billion to $3.87 billion, up 25%–27% year over year. Again, GAAP net loss per share is expected in the range of ($1.22)–($1.18), while non-GAAP EPS is expected in the range of $1.93–$1.97.

Summary

Salesforce.com reported mediocre fourth-quarter 2013 results. Loss per share was narrower than the Zacks Consensus Estimate. The first-quarter guidance was modest. This apart, revenue grew across geographies, which was a positive factor.

The company also received decent cloud business. Moreover, business in Europe also grew to a considerable extent. However, headwinds in the form of not-so-encouraging tech expenses. Though we are encouraged by Salesforce’s growth prospects in the cloud market, the renewed focus of the tech giants such as Dell Inc. (DELL - Analyst Report), Hewlett-Packard Co. (HPQ - Analyst Report) and IBM (IBM - Analyst Report) into the cloud space intensified competition in the third quarter.

Salesforce shares carry a Zacks Rank #5 (Strong Sell).