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Salesforce jumps on rosy revenue forecast after acquisitions

30 May 2018
Salesforce gave a revenue forecast that topped analysts’ estimates, signalling the company’s expensive efforts to expand its software products and customer base may be paying off

Sales will be as much as $3.23 billion in the current quarter, the San Francisco-based company said Tuesday in a statement. Analysts on average projected $3.1 billion, according to data compiled by Bloomberg. The company also raised its full-year revenue forecast. Shares climbed about 4.5% on the report.

Chief Executive Officer Marc Benioff has expanded Salesforce’s ambitions beyond software for managing customer relationships, the business that made it an early leader in corporate cloud computing. The company bought MuleSoft for $6.5 billion – its largest-ever purchase – in May to chip away at Oracle Corp. in integration software that connects various systems. That deal, following forays into marketing and e-commerce products, is aimed at turning Salesforce into the top source of internet-based software for companies looking to replace all kinds of traditional programs once hosted in on-site servers.

The acquisitions have bolstered revenue, which Salesforce said climbed 25% to $3.01 billion in the fiscal first quarter. The company has promoted its expanding product portfolio to a bevy of new large and foreign clients in a bid to rival Oracle and Microsoft. The result is Salesforce will reach its $20 billion sales goal “faster than imagined”, Benioff said on a conference call. The company has also spent rapidly on its international expansion, pledging to invest $2.2 billion in its French business and $2 billion in its Canadian operations over the next five years.

“We signed several deals, including the largest transaction in the history of the company, and the biggest public-sector deal,” Chief Operating Officer Keith Block said in an interview. “The revenue for the quarter was over $3 billion. That’s twice the rate of the market. We’re obviously gaining share.” The public-sector customer is the U.S. Department of Agriculture, which uses the company’s Service Cloud to communicate with constituents, Block said.

The stock closed Tuesday at $126.88 in New York and has gained 24 percent this year.

Salesforce expects its MuleSoft acquisition to add $315 million to revenue through the end of the fiscal year, after accounting for its purchase. MuleSoft might help boost profit beyond this fiscal year, Block said, though in the current quarter “we’re taking on the cost of the acquisition and integration”.

Profit, excluding certain items, was 74 cents a share in the first quarter compared with the average analyst estimate of 45 cents. The company forecast adjusted earnings of 46 cents to 47 cents a share in the current quarter – short of analyst projections of 52 cents.

Billings, or deferred revenue, jumped 25% to $6.2 billion in the quarter ended April 30. That compared with an average estimate of a 12% increase from six analysts surveyed by Bloomberg. Salesforce has stopped releasing future billings projections.

Revenue from the Salesforce Platform, the system that allows companies to build custom applications to track industry-specific workflows, gained 36% to $575 million in the quarter. Revenue from Salesforce’s flagship tool for managing customer relationships rose 16% to $965 million.

“The company continues to land larger, multi-cloud deals, which should help support upside to current estimates,’’ Bhavan Suri and Sarah Shizas, analysts at William Blair & Co., wrote in a note before the earnings release. Salesforce has gained traction in health care, financial services and government industries, they added.

Salesforce dominates the market for customer-relationship software. The company had 19.6% of the market in 2017, according to industry research firm IDC. Oracle was second with 7.1%, and SAP SE had 6.5%. Microsoft and Adobe rounded out the top five.

[Bloomberg]

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