Salesforce's Q2 Loss Widens - Analyst Blog

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Salesforce.com Inc. ( CRM ) reported second-quarter fiscal 2014 adjusted loss per share of 9 cents, wider than the Zacks Consensus Estimate of 4 cent loss per share.

Revenues

Salesforce's revenues of $957.1 million for the quarter not only increased 30.8% on a year-over-year basis, but also surpassed the Zacks Consensus Estimate of $937.0 million. Reported revenues also beat management's guided range of $931.0 million to $936.0 million. During the reported quarter, the company witnessed continued demand across all of its cloud solutions supported by a decline in the attrition rate.

Among its business segments, revenues from Subscription and Support increased 31.3% from the year-ago quarter to $902.8 million. Professional Services and Other revenues increased 22.9% on a year-over-year basis to $54.3 million. During the quarter, Salesforce had a number of customer wins such as Johnson & Johnson ( JNJ ), Juniper ( JNPR ) and Home Depot ( HD ).

Geographically, the company witnessed revenue growth of 33.6% in the Americas while revenues from Europe and Asia Pacific increased 39.4% and 5.8%, respectively, on a year-over-year basis.

Operating Results

Salesforce reported gross profit (including stock-based compensation but excluding amortization of acquisition-related intangibles) came in at $761.9 million, up 29.8% from the year-ago quarter. However, gross margins came in at 79.6% compared with 80.2% in the previous year quarter.

Operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 33.5% from the year ago quarter to $774.8 million. Moreover, as a percentage of revenue, operating expenses expanded 160 basis points from the year ago quarter.

Salesforce reported operating loss (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $12.8 million which worsened from the year-ago profit of $6.6 million. Acquisition of ExactTarget and higher costs related to the Oracle agreement impacted operating results.

Salesforce's net income, including stock-based compensation and its related tax effects but excluding all one-time items and proportionate tax, came in at $31.2 million or 5 cents, which increased from $5.8 million or 1 cent in the year-ago quarter.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash and cash equivalents and marketable securities of $930.0 million, down from $3.1 billion in the previous quarter. Accounts receivable were $599.5 million compared to $502.6 million in the prior quarter.

Total deferred revenue in the quarter was $1.79 billion which increased 34.0% on a year-over-year basis.  Cash from operating activities was $183.0 million compared with $283.2 million in the prior quarter.

Guidance

For the third quarter of 2014, the company expects revenues in the range of $1.050 billion to $1.055 billion reflecting a year-over-year increase of 33.0% to 34.0%. The company expects its non-GAAP earnings per share in the range of 8 cents to 9 cents.

The company has raised its full fiscal year 2014 revenues from the previous range of $3.835 billion-$3.875 billion to $4.000 billion-$4.025 billion (year-over-year increase of 31.0%-32.0%). Salesforce expects its non-GAAP EPS in the range of 32 cents-34 cents.

Recommendation

Salesforce.com reported modest second-quarter 2014 results. Loss per share was wider than the Zacks Consensus Estimate, while revenues were up on a year-over-year basis. Operating results were impacted by higher costs. The company has provided positive third-quarter guidance and raised its fiscal 2014 revenue guidance.

The higher number of deal wins was encouraging and so were the geographical contributions. Overall, the company's diverse cloud offerings and the stronger spending projection by Gartner are positive.

Although, the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent by the renewed efforts of other tech giants such as Dell Inc., International Business Machines in the cloud space.

However, continued weakness in Europe, currency headwinds and increase in investments could pose challenges, going forward.

Salesforce has a Zacks Rank #3 (Hold).



SALESFORCE.COM (CRM): Free Stock Analysis Report

HOME DEPOT (HD): Free Stock Analysis Report

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

JUNIPER NETWRKS (JNPR): Free Stock Analysis Report

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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 , HD , JNJ , JNPR

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