Shares of salesforce.com Inc. (CRM) gained more than 11% in yesterday’s after-hour trade following the company's strong top-line results for fourth-quarter fiscal 2015 and optimistic guidance for fiscal 2016. Moreover, the company’s adjusted loss (including stock-based compensation but excluding all one-time items on a proportionate tax basis) of a penny was much narrower than the year-ago quarter loss of 11 cents. However, it fell short of the Zacks Consensus Estimate of a breakeven.
Salesforce’s revenues of $1.445 billion not only increased 26.1% from the year-ago quarter but also beat the Zacks Consensus Estimate of $1.440 billion. Reported revenues also beat management’s guided range of $1.436 to $1.441 billion. The year-over-year improvement was primarily attributed to rapid adoption of the company’s cloud-based solutions.
Also, higher demand for Salesforce ExactTarget Marketing Cloud platform, part of the Salesforce1 Customer Platform, contributed to the year-over-year revenue increase.
During the quarter, the company’s cloud-based solutions were selected by a number of companies including General Electric Company (GE) and The Home Depot Inc. (HD).
Among its business segments, revenues from Subscription and Support increased 25% from the year-ago quarter to $1.35 billion. Professional Services and Other revenues increased 41% on a year-over-year basis to $99 million.
Geographically, the company witnessed revenue growth of 28.6% in the Americas, while revenues from Europe and Asia increased 21.4% and 17.1%, 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 $1.109 billion, up 22.7% from the year-ago quarter. However, gross margin contracted 220 basis points (bps) to 76.7% from the year-ago period, primarily due to increased investment in infrastructure development which also includes expansion of international data center.
Adjusted operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 4.4% from the year-ago quarter to $1.104 billion, primarily due to higher investments in research and development, marketing and sales and general and administrative activities. However, as a percentage of revenues, operating expenses contracted 750 bps from the year-ago quarter to 76.4%.
The company posted adjusted operating income (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $5.2 million as against the year-ago loss of $57.1 million. The year-over-year improvement in adjusted operating income was mainly due to higher revenue base and a drop in operating expenses as a percentage of revenues.
Salesforce posted adjusted net loss (including stock-based compensation but excluding all one-time items on a proportionate tax basis) of $5.7 million or a penny. However, it fared better than the year-ago quarter’s net loss of $67.1 million or 11 cents per share.
Balance Sheet & Cash Flow
Salesforce exited the quarter with cash and cash equivalents and marketable securities of $995.4 million compared with $926.1 million in the previous quarter. Accounts receivable were $1.906 billion compared with $794.6 million at the end of last quarter.
Total deferred revenue, as of Jan 31, was $3.32 billion, which increased 32% on a year-over-year basis. During the quarter, the company generated $332 million cash from operating activities and $1.17 billion in fiscal 2015.
Guidance
For the first quarter of fiscal 2016, the company expects revenues in the range of $1.485 to $1.505 billion, reflecting a year-over-year increase of 21% to 23%. The Zacks Consensus Estimate is pegged at $1.503 billion. The company expects non-GAAP earnings per share in the range of 13 to 14 cents. The Zacks Consensus Estimate (including stock-based compensation expenses) stands at a penny.
For fiscal 2016, Salesforce expects revenues in the range of $6.475–$6.520 billion, representing a year-over-year increase of 20% to 21%. The company projects non-GAAP earnings per share between 67 cents and 69 cents. The Zacks Consensus Estimate for revenues is pegged at $6.489 billion and earnings per share (including stock-based compensation expenses) of 8 cents.
Recommendation
Although Salesforce reported adjusted loss in the fourth quarter, it fared better than the year-ago quarter. Moreover, the company’s robust top-line performance was an encouraging factor in the reported quarter. Revenues surpassed the consensus mark and increased on a year-over-year basis, primarily backed by growth across all its business segments and Salesforce ExactTarget Marketing Cloud platform. The company provided positive first-quarter and fiscal 2016 guidance.
The higher number of deal wins was encouraging as were the geographical contributions. We consider the rapid adoption of Salesforce1 Customer Platform to be a positive. Overall, the company’s diverse cloud offerings and considerable spending on digital marketing remain the catalysts. Moreover, strategic acquisitions and the resultant synergies are expected to benefit over the long run.
Considering the increasing customer adoption and satisfactory performances, market research firm Gartner acknowledged Salesforce as the leading social CRM solution provider. We believe that the rapid adoption of Salesforce’ platforms indicate solid growth opportunities in the ever-growing cloud computing segment.
Although the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent due to intensifying competition from International Business Machines (IBM), Oracle Corp. and SAP AG. Moreover, currency fluctuations and increase in investments in international expansions and data centers could impact near-term results.
Salesforce has a Zacks Rank #4 (Sell).
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