UPDATE: Salesforce.com 3rd-Quarter Loss Widens on Tax Impacts, Higher Costs

Date : 11/20/2012 @ 7:26PM
Source : Dow Jones News
Stock : Salesforce.Com (CRM)
Quote : 106.83  0.0 (0.00%) @ 9:27AM
Salesforce share price Chart

UPDATE: Salesforce.com 3rd-Quarter Loss Widens on Tax Impacts, Higher Costs

Salesforce (NYSE:CRM)
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5 Years : From Nov 2012 to Nov 2017

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--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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