Salesforce.com Inc. (CRM) reported fourth-quarter fiscal 2014 adjusted loss (excluding amortization of purchased intangibles and amortization of debt) on a proportionate tax basis of 10 cents per share, wider than the Zacks Consensus Estimate of a loss of 8 cents per share. The reported result slumped from the year-ago earnings of 2 cents per share.
Revenues
Salesforce’s revenues of $1.15 billion not only increased 37.2% from the year-ago quarter but also surpassed the Zacks Consensus Estimate of $1.13 billion. Reported revenues also beat management’s guided range of $1.124 billion to $1.129 billion. The year-over-year increase in revenue was primarily due to the acquisition of ExactTarget, which was completed in Jul 2013.
During the reported quarter, the company witnessed continued demand across its cloud solutions supported by a decline in attrition rate. Moreover, contributions of approximately $96.0 million from ExactTarget positively impacted revenues.
Among its business segments, revenues from Subscription and Support increased 36.9% from the year-ago quarter to $1.08 billion. Professional Services and Other revenues increased 42.8% on a year-over-year basis to $70.2 million.
Geographically, the company witnessed revenue growth of 41.0% in the Americas while revenues from Europe and Asia increased 41.0% and 12.0%, respectively, on a year-over-year basis.
Operating Results
Salesforce’s adjusted gross profit (including stock-based compensation but excluding amortization expenses) came in at $903.4 million, up 34.8% from the year-ago quarter. However, gross margin contracted to 78.9% compared with 80.3% in the previous-year quarter, primarily due to the acquisition of ExactTarget and Oracle license agreements.
Operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 43.3% from the year-ago quarter to $960.4 million. As a percentage of revenues, operating expenses expanded 359 basis points (bps) from the year-ago quarter.
Salesforce reported operating loss (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $57.1 million, down from the year-ago income of $0.2 million. The acquisition of ExactTarget, higher costs related to the Oracle agreement and the Dreamforce event in Nov, 2013 impacted operating results.
Salesforce’s net loss, including stock-based compensation but excluding all one-time items on a proportionate tax basis, came in at $66.9 million or 10 cents per share, which worsened from an income of $13.9 million or 2 cents per share reported in the year-ago quarter.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash and cash equivalents and marketable securities of $838.8 million, up from $703.5.0 million in the previous quarter. Accounts receivable were $1.36 billion compared with $604.0 million in the prior quarter.
Total deferred revenue in the quarter was $2.52 billion, which increased 35.0% on a year-over-year basis. Cash from operating activities was $271.2 million compared with $137.9.0 million in the prior quarter.
Guidance
For the first quarter of 2015, the company expects revenues in the range of $1.205 billion to $1.210 billion, reflecting a year-over-year increase of 35.0% to 36.0%. The Zacks Consensus Estimate is pegged at $1.187 billion. The company expects non-GAAP earnings per share in the range of 9 cents to 10 cents for the first quarter. The Zacks Consensus Estimate is pegged at a loss of 5 cents per share.
The company raised its full fiscal-year 2015 revenue guidance from the previous range of $4.050 billion–$4.055 billion to $5.25 billion–$5.30 billion (year-over-year increase of 29.0% to 30.0%). Salesforce also revised its non-GAAP earnings per share guidance from 33 cents–34 cents to 48 cents–50 cents. The Zacks Consensus Estimate is pegged at revenues of $5.20 billion and loss per share of 9 cents.
Recommendation
Salesforce.com reported a mixed fourth-quarter 2014. Although loss per share was wider than the Zacks Consensus Estimate, the company’s revenues surpassed the consensus mark. Operating results were impacted by higher costs, acquisition of ExactTarget and the Dreamforce event. The company provided a positive first-quarter guidance and raised its fiscal 2015 guidance as well.
The higher number of deal wins was encouraging and so were the geographical contributions. Overall, the company’s diverse cloud offerings and strong spending on digital marketing are positives. Moreover, the company’s strategic acquisitions and the synergies from them are expected to remain long-term positives.
Although, the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent by the renewed efforts of other tech giants, such as International Business Machines (IBM).
Competition from Oracle Corporation (ORCL) and SAP AG (SAP), continued weakness in Europe, currency headwinds and an increase in investments could pose challenges, going forward.
Salesforce has a Zacks Rank #2 (Buy).
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