Salesforce: A Closer Look at the Recent Results

In the last week of August, Salesforce.com (CRM) delivered a strong performance in the second quarter. The company announced second quarter revenue of $1.63 billion, up 24% from $1.32 billion in the second quarter of 2014. The company has also provided robust revenue guidance for third quarter, and estimates total revenue to be in the range of $1.69 billion to $1.70 billion, up 22% to 23% year-over-year.

However, Salesforce.com is still a loss making company, and declared a second quarter net loss of $0.19 per share. In absolute terms, its net loss increased to $85 million in the quarter from $61.1 million during the same period last year.

Salesforce reported solid top line growth primarily driven by constant currency revenue growth across each of its segments including subscription and support and professional services.

But, will the company be able to improve its overall performance going forward? Let's find out.

Looking past the revenue growth

Apart from delivering notable top line growth for the second quarter, Salesforce.com also grew its year-over-year non-GAAP operating margin for the fifth successive quarter. In addition, the CRM company also generated over $1 billion of cash flow from operations during the first half of the year, up 44% as compared to last year.

All in all, Salesforce.com delivered second quarter operating cash flow of $304 million, up 24% year-over-year. Overall, cash and cash equivalents and marketable securities by the quarter end stood at $2.07 billion. Going forward, Salesforce.com estimates its full fiscal year 2016 year-over-year operating cash flow growth to be in the 24% to 25% range.

More importantly, Salesforce will be able to continue reporting strong growth due to growth in its deals. Last quarter, Salesforce.com reported record seven-figure plus transactions during the quarter as a result of its enhanced focus on developing key partnerships and global expansion. Moreover, the amount Salesforce billed customers for the quarter jumped 21% to $1.25 billion, surpassing analysts' average estimate for growth of 15%.

The company also increased its sales forecast for the fiscal year, driven by the fact that several major enterprises signed up for Salesforce.com's products. However, Steve Koenig, an analyst at Wedbush Securities Inc., has a hold rating on the stock due to the fact that the company's CRM sales have slowed as several companies have already replaced older systems based on advanced technologies like Siebel.

However, there are certain analysts who are positive about Salesforce's prospects as well. For example, analysts at TheStreet rate Salesforce.com as a Buy. They are of the opinion that Salesforce has several strengths that will outweigh its weaknesses. The company's key strengths include its solid revenue growth, strong stock price performance, robust net income growth, impressive operating cash flows, and increasing profit margins.

Conclusion

All in all, I think that investors will do well to invest in Salesforce.com for the long run as the company is seeing strong traction in its business. Of course, the company needs to improve its bottom line performance, but I think that it is doing the right thing by focusing on capturing more market share as it operates in a fast growing and competitive industry. As such, I think Salesforce will be able to sustain its impressive growth in the long run.

Published on Sep 4, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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