By Shira Ovide
Salesforce.com Inc. showed it could continue to post heady
growth even as it graduated from Internet upstart to old-guard
stalwart. The San Francisco company said revenue rose 23%
year-over-year in its fiscal first quarter ended April 30, a pace
somewhat faster than Wall Street had expected.
Salesforce provides software tools, mostly for managing sales
efforts, that run over the Internet. The company helped pioneer the
shift toward cloud computing, charging a subscription fee and
managing updates and other maintenance, and away from traditional
software that customers buy outright and install on computers on
their own premises.
The company's earnings report gave some fuel to doubters in
Salesforce's business model, but also gave supporters a reason to
smile. The company's revenue growth, while robust, continued to
slow from prior years. Investors were thrilled a company of
Salesforce's size could keep growing as fast as it has. Shares rose
about 6.5% in after-hours trading Wednesday, to $74.93, following
the disclosure of the quarterly earnings report.
Marc Benioff, Salesforce's CEO and chief cheerleader for the
cloud-computing business model, has said he wanted his company to
reach $10 billion in annual sales faster than any business-software
company in history. To reach his target, Mr. Benioff has pushed
into international markets, acquired companies to branch into new
business lines such as software for marketing departments, and
sought to land bigger corporate clients.
It is too early to know whether many of Salesforce's more recent
business initiatives will pay off. However, the company's
revenue-growth rates have made many investors optimistic about its
prospects. Salesforce said revenue rose 29% from a year ago in its
marketing-automation business line--a fiercely competitive category
with rivals like Adobe Systems Inc. and SAP SE.
Salesforce also reported surprise progress toward profitability.
The company typically has posted losses, in part because of heavy
spending on employee stock options and related expenses. In the
three months ended in April, Salesforce posted net income of $4.09
million, or one cent a share.
The company's profit was helped by a one-time gain of nearly $37
million due to ending a lease on a San Francisco office
complex.
Salesforce also followed through on a pledge to boost its
operating income margin, the share of revenue left over each
quarter after allocating for costs related to research and
development, paying employees and other expenses. That measure rose
to 11.7%, excluding some costs, from 9.7% a year earlier.
Recent reports that the company may entertain sale overtures
sent shares up about 4.9% from the last week of April to
Wednesday's market close. Analysts have said the share price was
likely to trade in reaction to takeover speculation in addition to
the company's finances and future prospects.
Mr. Benioff at an event last week declined to comment on
"M&A rumors." His top lieutenant echoed that response in an
interview Wednesday.
"This is all about business as usual," said Keith Block,
Salesforce's president and vice chairman of its board. "We're
really, really excited about our performance and very optimistic
about where things are going."
Mr. Benioff said on a conference call with analysts Wednesday
that he planned to spend the summer in Europe, as he did last year,
to work on the company's expansion plans there.
Overall in the quarter, Salesforce's revenue rose to $1.51
billion from $1.23 billion a year earlier. The company said its
deferred revenue, a closely watch metric of future revenue for
subscription-software companies, rose 31% from a year earlier.
The company raised slightly its forecast of revenue for the
fiscal year ending in January 2016. Salesforce said it expected
yearly revenue to be $6.52 billion to $6.55 billion, up from the
company's prior forecast of $6.475 billion to $6.52 billion in
revenue. That would be an increase of 21% to 22%-slower than the
company's 32% and 33.5% revenue growth in the prior two fiscal
years. That estimate included the impact of foreign exchange, which
was expected to exert a drag of $175 million to $200 million.
Write to Shira Ovide at shira.ovide@wsj.com
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