Salesforce.com Inc. (CRM) reported first-quarter fiscal 2014 adjusted loss per share of 7 cents, wider than the Zacks Consensus Estimate of 1 cent loss per share.
Revenues
Revenues in the quarter were $892.6 million, up 28.3% from the year-ago quarter. The quarter’s result was also higher than the company’s guidance range of $882 million to $887 million. During the reported quarter, the company witnessed continued demand across all of its cloud solutions supported by a decline in the attrition rate.
Among its business segments, the company witnessed Subscription and Support revenues of $842.0 million, an increase of 28.5% on a year-over-year basis. Moreover, Professional Services and Other revenues were $50.0 million, an increase of 25.3% on a year-over-year basis.
Geographically, the company witnessed revenue growth of 30.0% in the Americas to a range of $631 million. Moreover, revenues from Europe grew 38.0% year-over-year to $163.0 million, while the revenues from Asia increased 7.0% in dollars to $99.0 million.
Operating Results
Gross profit expanded 25.7% year over year to $683.6 million. Gross margin was 76.6%, down 160 basis points from the year-ago quarter.
Total operating expenses rose 28.6% year over year to $728.2 million on the back of a 39.2% rise in research and development (R&D) expenses, a 26.1% increase in sales and marketing expense and a 27.7% rise in general and administrative (G&A) expenses. Continuous increase in research activity to come up with new and innovative products have resulted in the increase in the R&D expenses. Moreover, the company has increased its salesforce to improve its product penetration.
Operating loss of $44.5 million during the quarter was wider than the year-ago quarter’s loss of $22.2 million. Operating loss margin was 4.9% versus 3.2% in the prior-year quarter.
GAAP net loss in the quarter was $67.7 million or 12 cents per share compared with net loss of $19.5 million or 4 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expenses, adjusted net loss was 7 cents per share compared with a loss of 1 cent in the year-ago quarter.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash and cash equivalents of $2.1 billion, up from $867.6 million in the prior quarter. Accounts receivable declined to $502.6 million from $872.6 million in the prior quarter. Total deferred revenue in the quarter was $1.67 billion, down from $1.79 billion in the previous quarter.
Cash from operating activities was $283.2 million compared with $281.6 million in the prior quarter.
Guidance
For the second quarter of 2014, the company expects revenues to be in the range of $931.0 million to $936.0 million. The company expects GAAP net loss per share is expected to be in the range of $0.07 to $0.06. Apart from this, the company also expects non-GAAP earnings per share in the range of 11 cents to 12 cents.The company expects the second-quarter CapEx as a percentage of revenue to be approximately 11.0%.
The company expects full fiscal year 2014 revenue to be in the range of $3.835 billion to $3.875 billion. GAAP net loss per share is expected to be in the range of ($0.33) to ($0.31) while diluted non-GAAP EPS is expected to be in the range of $0.47 to $0.49.
Recommendation
Salesforce.com reported modest first-quarter 2014 results. Loss per share was wider than the Zacks Consensus Estimate, while revenue up on a year over year basis. The company has provided decent second-quarter guidance.
Moreover, the higher number of new deal wins was encouraging and so were the geographical contributions. Overall, the company’s diverse cloud offerings and a better spending prospect projection by Gartner are positive.
Although, the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent by the renewed focus of tech giants such as Dell Inc. (DELL), IBM (IBM) and Hewlett-Packard Co. (HPQ) in the cloud space.
However, continued weakness in Europe, currency headwinds, continued operating margin contraction, economic challenges in Japan and stiff competition from its peers keep us concerned.
Salesforce has a Zacks Rank #3 (Hold).
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