SalesForce Beats Estimates in 4Q - Analyst Blog

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Salesforce.com Inc. ( CRM ) reported fourth quarter fiscal 2012 adjusted net income of 9 cents per share, well ahead of the Zacks Consensus Estimate of 4 cents.

Revenues

Revenues in the quarter were $632.0 million, up 38.3% from $456.9 million in the year-ago quarter. However, reported revenues missed the company's guidance range of $673.0 million to $678.0 million. The company also reported a small forex gain of $2.0 million. Moreover, the company also benefited from a sustained decline in dollar attrition, which fell for the tenth consecutive quarter.

Segment wise, Subscription and Support revenues escalated 38.7% year over year to $594.3 million. Professional Services and Other revenues increased 32.8% from the year-earlier quarter to $37.6 million.

Geographically, on a year-over-year basis, revenues in the Americas improved 41.4% to $436.2 million, contributing 69.0% to the total revenue; Europe shot up 30.4% to $108.1 million, contributing 17.0%; while Asia-Pacific grew 33.9% to $87.5 million, contributing 14.0%.

Operating Results

Gross profit on a GAAP basis was $495.6 million, up 35.9% year over year. GAAP gross margin was 78.0%, down from 80.0% in the year-ago quarter. The gross margin deterioration was primarily the result of extra costs associated with recent acquisitions and some data center investments.

Operating expenses rose 37.5% year over year on the back of 40.1% rise in research and development expense, 40.4% increase in sales and marketing expense and 26.4% higher general administrative expense. The operating expense growth rate was much higher than that of revenue growth and this resulted in an operating loss on a GAAP basis.

Operating loss of $6.4 million during the quarter was wider than the year-ago quarter loss of $0.4 million. Operating loss margin was (1.0%) versus break even in the prior-year quarter. The lackluster operating performance was due to an increase in operating performance.

GAAP net loss in the quarter was $4.08 million or 3 cents compared with a net income of $10.9 million or 8 cents in the comparable quarter last year.

Excluding special items but including stock-based compensation expense, adjusted net income was 9 cents per share compared with 14 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $777.9 million, up from $645.9 million in the prior quarter. Accounts receivable increased $371.4 million from the prior quarter to $683.7 million. Salesforce.com has no long-term debt. Total deferred revenue in the quarter was $1291.6 million, up from $917.9 million in the previous quarter.

Cash from operating activities was $240.4 million compared with $128.7 million in the prior quarter. Capital expenditure was $44.6 million. Free cash flow was $195.7 million.

Guidance

Revenue for the first quarter of fiscal 2013 is projected in the range of $673 million to $678 million. GAAP net loss per share is expected to be in the range of ($0.19) to ($0.18), while diluted non-GAAP EPS is expected to be in the range of 33 cents to 34 cents.

Revenue for fiscal 2013 is projected in the range of $2.92 billion to $2.95 billion. GAAP net loss per share is expected to be in the range of ($0.55) to ($0.51) while diluted non-GAAP EPS is expected to be in the range of $1.58 to $1.62.

Conclusion

Salesforce.com reported decent fourth quarter 2012 results. The earnings guidance is also decent, but cost increase may offset revenue growth to a certain extent. We are positive about the company's entire product line, but are apprehensive about the rise in R&D investments, which could rationalize margins to some extent. However, we also expect Chatter to be a key driver for Salesforce.com's enterprise license agreements.

We, however, caution investors about strong competition in CRM application and cloud-computing areas. Google Inc. ( GOOG ) and Microsoft Corp. ( MSFT ) are worthy of special mention, since they have been fighting 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 #3 Rank, implying a short-term Hold rating.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CRM , GOOG , MSFT

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