Salesforce Springs Some Q4 Surprises

Salesforce shares held strong on Friday, following Thursday’s spike on the company’s release of a fiscal fourth-quarter earnings report that beat Wall Street estimates and raised revenue guidance for fiscal year 2017.

The stock finished up 11 percent Thursday, at $69.42, and held the gains on Friday, closing at $69.11.

Fourth-quarter revenue was $1.81 billion, an increase of 25 percent from a year ago and up 27 percent in constant currency, the company said in its Wednesday report.

Analysts had expected $1.79 billion in revenue.

For the quarter, Salesforce lost 4 cents a share on a GAAP basis and earned 19 cents a share on a non-GAAP diluted earnings basis. For fiscal 2016, it lost 7 cents a share on a GAAP basis and earned 75 cents a share on a GAAP diluted basis.

Subscription and support revenue was up 25 percent to $1.68 billion for the quarter, and revenue for professional services rose 28 percent from year-ago figures, the company said.

Fiscal 2016 revenue rose 24 percent from a year ago to $6.67 billion. Subscription and support revenue increased 24 percent to $6.21 billion, and professional services revenue rose 28 percent to $462 million from a year ago.

Salesforce raised revenue targets for the first quarter of fiscal 2017 to between $1.885 billion and $1.895 billion, an increase of 25 percent year over year. It projected diluted GAAP earnings of between 0 and 1 cent a share, while diluted non-GAAP earnings were expected to come in at 23 to 24 cents a share.

For fiscal 2017, Salesforce projected revenue of between $8.08 billion and $8.12 billion, an increase of 21 to 22 percent year over year.

The GAAP loss per share was expected to bet 2 cents a share to flat, while non-GAAP earnings were expected to range from 99 cents to $1.01 a share.

Pinching Themselves

The fourth-quarter performance was “way beyond our expectations,” CEO Marc Benioff said.

“It was an amazing year,” he said. “We are confident it’s going to be an amazing first quarter. And no other enterprise software company our size and scale is delivering at this level or as excited as we are, and no one else is as well positioned for this age of the customer that we are moving into in this fourth industrial revolution.”

The company drove an all-time high in the number of large transactions — more than 600 seven-figure transactions in the quarter, Salesforce said. Among the new customers it signed were Unilever, which will bring 95,000 employees onto the platform, and Charles Schwab for its entire CRM platform.

“Salesforce continues to defy the law of big numbers and deliver impressive growth as it deepens its market penetration in the CRM arena, expands its portfolio of solutions across other application areas, and extends its reach into new [locations] and industries,” Jeff Kaplan, managing director at ThinkStrategies, told CRM Buyer.

The firm recently enhanced its lineup of business apps with analytics and other advanced technologies, which has given more customers reasons to stay loyal without making additional expenditures, said Denis Pombriant, managing principal at Beagle Research.

“It’s putting even more emphasis on the platform,” he told CRM Buyer. “The market for platform is potentially so much bigger than for CRM, or at least demand is additive. So I expect they’re at an inflection point and this news might be their new normal.”

Rapid Adoption

Salesforce has won over new business with its Lightning platform, which allows for “faster, more democratic app development,” giving it exposure to more potential users, said Rebecca Wettemann, vice president at Nucleus Research.

“We’re also seeing significant growth in Salesforce’s business, with SMB customers seeing three- and four-digit return on investment — expanding Salesforce’s reach into SMBs in a way its competitors cannot,” she told CRM Buyer.

However, the company will have to continue to innovate and will face pricing pressure from competitors, Wettemann warned, noting that it still has a “pretty consistent track record” of outperforming Wall Street expectations.

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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