Salesforce.com Inc. (CRM – Get Report) is seeing some profit-taking after it beat October quarter estimates and issued above-consensus January quarter sales guidance but issued below-consensus quarterly EPS guidance due to an aggressive spending pace.
That fact that shares were up nearly 60% going into earnings has much to do with the selloff. Here are some takeaways from Salesforce’s report and earnings call:
1. Billings momentum remains strong.
Salesforce’s closely-watched billings — defined as revenue plus the sequential change in the deferred revenue balance — came in at $2.25 billion — up 24% annually and easily above a $2.02 billion consensus. In addition, the unbilled deferred revenue balance, which consists of deals that are under contract but which Salesforce hasn’t yet billed clients for, grew 34% to $11.5 billion. That’s faster than the 30% growth seen in the July quarter.
Billings growth slowed slightly from the July quarter’s 26%. But the July quarter’s growth was boosted by the fact that Salesforce’s $2.8 billion purchase of e-commerce software firm Demandware didn’t close until late in the July 2016 quarter. The latest billings numbers suggest deal momentum with big enterprises — including for deals featuring multiple Salesforce products — remains pretty healthy.
On the earnings call, COO Keith Block talked up a “wall-to-wall” deal with a European automaker and a giant deal with the Department of Homeland Security, among others. And CEO Marc Benioff reiterated Salesforce’s goal of organically achieving $20 billion to $22 billion in revenue by fiscal 2022 (ends in Jan. 2022), up from $8.4 billion in fiscal 2018.
It’s worth noting that Salesforce did guide for just 19% to 20% January quarter deferred revenue growth. But the company has beaten its deferred revenue guidance by a healthy margin during the last couple of quarters.
2. Share gains continue — especially in customer support and marketing software.
Salesforce’s mainstay Sales Cloud business (salesforce automation software) saw revenue grow 17% to $906.5 million, a rate that’s even with the July quarter’s. But its Service Cloud business (customer service software) saw revenue growth improve to 23% (sales totalled $738.1 million) from 21%.
And the Marketing and Commerce Cloud unit (marketing automation and e-commerce software) saw revenue rise 40% to $346.2 million. Though annual growth slowed from the July quarter due to the timing of the Demandware deal’s closing, it looks as if Salesforce’s Marketing Cloud platform saw growth accelerate. And the Salesforce Platform and another unit, which covers the Heroku and Force.com cloud app development platforms (PaaS), saw growth improve slightly to 34% (sales totalled $495.3 million).
A healthy CRM software market — benefiting from both strong IT software spending and a shift in IT spending power towards chief marketing officers (CMOs) — is helping Salesforce’s cause. But with the help of “land-and-expand” situations in which Sales Cloud deals are followed by deals for other products, the company is also clearly taking enterprise CRM share from rivals such as Oracle Corp. (ORCL – Get Report) and SAP SE (SAP – Get Report).