Salesforce.com Inc. (
CRM
)
reported first quarter fiscal 2013 adjusted net loss of 2 cents per
share, poorer than the Zacks Consensus break even estimate.
Revenues
Revenues in the quarter were $695.0 million, up 37.9% from
$504.4 million in the year-ago quarter. However, reported revenues
surpassed the company's guidance range of $673 million to $678
million. The first quarter revenue was benefited from a continued
decline in dollar attrition. The company has adopted a diverse
business mix, and generated a substantial amount of its revenue
(more than 40.0%) from non-Sales Cloud contracts.
Geographically, the company witnessed decent revenue growth in
most of its geographical regions.Revenue in the American region
grew by 43.0% to $485 million.Revenue in European region grew by
$118.3 million, that's up 25.3% in dollars, and revenue in Asia was
$92.2 million, an increase of 31.8% compared to the year ago
quarter.
Operating Results
Gross profit on a GAAP basis was $543.9 million, up 35.5% year
over year. Gross margin was 78.2%, down from 79.6% in the year-ago
quarter. The gross margin declined as a result of higher cost of
production and specially the cost related to subscription and
support.
Operating expenses rose 40.1% year over year on the back of
45.2% rise in research and development expense, 45.3% increase in
sales and marketing expense and 20.5% higher general administrative
expense. The operating expense growth rate was much higher than
that of revenue growth and this resulted in a higher operating loss
on a GAAP basis.
Operating loss of $22.2 million during the quarter was wider
than the year-ago quarter loss of $2.8 million. Operating loss
margin was (3.2%) versus (0.6%) in the prior-year quarter. The
lackluster operating performance was due to an increase in
operating expense. The company was not able to exercise financial
discipline.
GAAP net loss in the quarter was $19.5 million or 14 cents
compared with a net income of $530.0 million or 0 cents in the
comparable quarter last year.
Excluding special items but including stock-based compensation
expense, adjusted net loss of 2 cents per share compared with 6
cents in the year-ago quarter.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash, equivalents and
short-term marketable securities of $710.4 million, up from $777.9
million in the prior quarter. Accounts receivable decreased to
$371.4 million from $683.7 million in the prior quarter..
Salesforce.com has no long-term debt. Total deferred revenue in the
quarter was $1257.4 million, up from $1291.6 million in the
previous quarter.
Cash from operating activities was $213.2 million compared with
$240.4 million in the prior quarter. Capital expenditure was $44.7
million.
Guidance
Revenue for the second quarter of fiscal 2013 is projected in
the range of $724.0 million to $728.0 million. GAAP net loss per
share is expected to be in the range of ($0.10) to ($0.09), while
diluted non-GAAP EPS is expected to be in the range of 38 cents to
39 cents.
Revenue for fiscal 2013 is projected in the range of $2.97
billion to $3.00 billion. GAAP net loss per share is expected to be
in the range of ($0.08) to ($0.45) while diluted non-GAAP EPS is
expected to be in the range of $1.60 to $1.63.
Conclusion
Salesforce.com reported modest first quarter 2013 results, with
revenue exceeding its guidance. The earnings guidance is mediocre,
but cost increase may offset revenue growth to a certain extent.
The company witnessed revenue increase across different
geographical regions. We are positive about the company's entire
product line, but are apprehensive about the rise in R&D and
subscription & support expenses, and also about the shrinkage
in margins.
Although cloud computing has great growth potential, we however
caution investors about strong competition in CRM application and
cloud-computing areas. The company is facing tough competition from
Google Inc.
(
GOOG
) and
MicrosoftCorp.
(
MSFT
) are worthy of special mention, since they are making aggressive
moves to win government clients at local, state and federal levels
to deploy their online e-mail and other applications that fit into
the cloud-computing space.
The company has a Zacks #2 Rank, implying a short-term Buy
rating.
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