Enterprise Apps

Investors Buying In Following Salesforce’s Q3 Stunner

Salesforce shares rose to an all-time high Thursday, after the company reported better-than-expected revenue during the quarter and raised earnings estimates for 2016.

Salesforce on Wednesday reported earnings of 21 US cents a share and a revenue increase of 24 percent to $1.71 billion, compared with a year ago.

The company is on pace to become the fourth largest enterprise software company in the world next year, behind Microsoft, Oracle and SAP, CEO Marc Benioff said during the earnings conference call.

“So Let’s be clear, Salesforce is the only software company selling billions of dollars at CRM, and we are at the center of what every company is going through. It’s digital transformation. It’s what every company wants to be in the 21st century,” he said.

Shares closed at $80.65 Thursday after reaching a new high of $82.90 earlier in the day.

Customer Momentum

Salesforce gained momentum from a series of new customer wins, as well as expanded business with existing clients, noted President Keith Block. General Motors, for example, decided to use Salesforce products to connect drivers with OnStar, as well as with retailers.

The company has been seeing a lot of traction in the retail area, he said; it closed the largest marketing cloud deal in the company’s history during the quarter with a major retailer.

The company raised fiscal 2016 estimates to 75 cents a share on revenue of $6.65 billion.

Diluted earnings are expected to come in at 18 or 19 cents a share in the fiscal fourth quarter, and revenue for the quarter is projected to be $1.782 billion to $1.792 billion, Salesforce said. Fiscal 2017 revenue is projected to rise 20-22 percent on an annual basis to between $8.0 billion and $8.1 billion.

“Salesforce is experiencing unusually rapid growth for a company of its size because it continues to behave like a startup seeking to prove itself in the market despite its success,” said Jeffrey Kaplan, managing director of ThinkStrategies.

“Salesforce has succeeded in becoming the market- and thought-leader in the cloud industry by painting a compelling picture of the future of business,” he told CRM Buyer, “and is creating a sense of urgency among corporate decision makers.”

Salesforce’s SaaS subscription model has led to strong demand, because it is much less expensive to deploy for corporate clients than traditional on-premises applications, Kaplan added.

The growth at Salesforce is due in large part to strong sales of its Desk.com application, as customers are getting a strong return on investment once the product is deployed, noted Rebecca Wettemann, vice president at Nucleus Research.

Customers are able to increase that momentum as they add new capabilities to their CRM footprint over time, she told CRM Buyer.

“Salesforce has also built a culture of customer evangelism, which is tremendously important to its momentum,” Wettemann said. “Although having a cloud solution is great, cloud deals are won — or lost — at every renewal, and Salesforce continues to invest in making its footprint stickier and its customers more successful.”

What seems to separate Salesforce from its rivals is the company’s talent for rapid innovation with new products and its focus on customer-facing applications, suggested Gartner Vice President Michael Maoz.

The challenge for them is getting Salesforce to react, he told CRM Buyer. “This is like the tail wagging the dog.”

Growth Curve Warning

However, Beagle Research Group analyst Denis Pombriant warned that While the quarterly numbers are strong, there are signs that the company’s growth curve may be beginning to slow down as it approaches critical mass, cautioned Denis Pombriant, principal analyst at Beagle Research Group.

“The numbers are still quite good,” he told CRM Buyer, but they “show how hard it is to keep up percentage momentum when a company gets very large.”

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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