Can Salesforce Keep Its Cloud Business Growing?
Salesforce.com, the poster child of the software-as-a-service revolution, will be reporting its quarterly results after the markets close today, and it’s a bit of a head-scratcher about what to expect.
Analysts polled by Thomson Reuters expect the company to report non-GAAP earnings of seven cents per share on sales of about $940 million, and they’d like to see guidance for another seven cents on sales of a little more than $1 billion for the quarter ending in October.
A lot has happened at Salesforce during the past three months. In June, it dropped $2.5 billion for the email marketing firm ExactTarget, which is its biggest acquisition to date, eclipsing even its huge deal for Buddy Media from last year.
Secondly, CEO Marc Benioff has mended fences with Oracle CEO Larry Ellison. On June 27, they held a rare joint conference call at which they explained their newfound bromance over cloud computing. The main point, they said at the time, is that they have a lot of shared customers who want their respective applications to work together. So now Salesforce’s primary customer relationship management application is designed to work with Oracle’s human resources and financial apps. In return, Salesforce is using Oracle’s Exadata hardware and basing its technology on Oracle databases.
Finally, there’s some lingering concern about Japan. Recall that the government of Japan is now Salesforce’s biggest customer. (It used to be Hewlett-Packard.) If last quarter is any indication, with Japan’s yen gaining strength against the U.S. dollar, Salesforce is likely to take a hit on the currency exchange. These currency headwinds caused some troubles last quarter, and ate into the company’s sales by about $18 million. That, combined with guidance that disappointed the Street, caused Salesforce shares to take a bit of a bath and fall by more than five percent the next day.
The fundamental story at Salesforce hasn’t changed, though it is now seeking to grow in lots of areas outside it primary application base. Sales grew last year by 34 percent, but expenses grew by nearly 37 percent. Benioff has long argued that the transition to the cloud is happening now, so now is the time to invest aggressively and take as much business away from traditional software companies — like Oracle, SAP and Microsoft — in as many lines of business as possible. Hence the ExactTarget deal.