) reported second quarter fiscal 2013 adjusted earnings per share
(EPS) of 5 cents, a penny ahead of the Zacks Consensus Estimate of
4 cents. Despite the marginal beat, shares plunged 5.09% in
after-hours trading, mainly reflecting a weak third quarter
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Revenues in the quarter were $731.6 million, up 34.0% from $546.0
million in the year-ago quarter. The quarter's result was above the
company's guidance range of $724.0 million to $728.0 million and
Zacks Consensus Estimate of $728.0 million.
Geographically, the company witnessed decent revenue growth in all
of its operating regions. Revenue in the American region grew 38.4%
to $508.0 million. Revenue from the European region was $124.6
million, up 22.1% from the year-ago quarter. Asia contributed $99.0
million to revenue, an increase of 28.6% compared with the year-ago
Second quarter revenue benefited strong demand for its product
lines. Some of the notable customers for Salesforce's Sales Cloud,
Service Cloud, Work.com and Chatter were Nestlé, Burberry Group
Office Depot Inc.
), and Levi's.
Reported gross profit grew 33.9% year over year to $569.2 million.
Gross margin was 77.8%, down 10 basis points from the year-ago
Total operating expenses rose 32.2% year over year on the back of
35.5% rise in research and development expense (R&D), 34.3%
increase in sales and marketing expense and 22.1% rise general
administrative expense. Continuous organic headcount increase and
addition from recent acquisitions drove operating expenses higher.
Operating loss of $13.5 million during the quarter was narrower
than the year-ago quarter loss of $15.7 million. Operating loss
margin was 1.8% versus 2.9% in the prior-year quarter.
GAAP net loss in the quarter was $9.8 million or 7 cents compared
with $4.3 million or 3 cents in the comparable quarter last year.
Excluding special items but including stock-based compensation
expense, adjusted net income was 5 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 $1.1 billion, up from $710.4
million in the prior quarter. Accounts receivable increased to
$446.9 million from $371.4 million in the prior quarter.
Salesforce.com has no long-term debt. Total deferred revenue in the
quarter was $1.34 billion, up from $1.29 billion in the previous
Cash from operating activities was $136.2 million compared with
$213.2 million in the prior quarter. Capital expenditure was $29.3
Revenue for the third quarter of fiscal 2013 is projected in the
range of $773.0 million to $777.0 million. GAAP net loss per share
is expected to be in the range of 27 to 26 cents, while diluted
non-GAAP EPS is expected to be in the range of 31 cents to 32
cents. The non-GAAP EPS guidance came short of Street's
Revenue for fiscal 2013 is projected in the range of $3.025 billion
to $3.035 billion (previously $2.97 billion to $3.00 billion),
representing a year-over-year growth of 33.0-34.0%. GAAP net loss
per share is expected to be in the range of 75 cents to 72 cents
(previously a loss of 8 cents to 45 cents), while diluted non-GAAP
EPS is expected to be in the range of $1.48 to $1.51 (previously
$1.45 to $1.49, considering a dilution from Buddy Media acquisition
in June 2012).
Salesforce.com reported modest second quarter 2013 results, with
EPS and revenue exceeding Zacks Consensus Estimates. But the
continuous reporting of GAAP loss is concerning. The third quarter
guidance, too, failed to boost investor sentiment.
The quarter's positives were solid geographical contributions,
continuous business wins and raised outlook for fiscal 2013. But
the rise in R&D investments and margin contractions concerns
There is no doubt about Salesforce's cloud leadership. But the
company faces tough competition from
). However, the company's growing exposure in the social networking
domain with Radian 6 (acquired in March 2012) is encouraging as it
could prove to be a long-term catalyst.
Currently, Salesforce.com has a Zacks #3 Rank, implying a
short-term Hold rating.