A lot of expectations are heaped upon Salesforce.com’s head and when they aren’t all met – or even if results only match expectations - the markets howl. That was case last night when the share price tumbled c6% in late trading following the release of Salesforce.com’s Q3 results.
While revenue for the three months to October 31 was up an excellent 36% year on year to $584m, the company reported and net loss of $3.8m (a net loss per share of $0.03), against a $21m profit in the same quarter last year as sales and marketing costs rose sharply. Operating costs rose 49%. The Q3 pattern was similar to that of Q2 (see Salesforce.com trajectory good but it posts a net loss)
The usual suspects contributed to higher costs - some more than others. Overall headcount was up 46% compared to the year ago quarter as a result of acquisition but mostly organic headcount growth (and set to rise again in Q4). Sales and marketing costs rose three points - 47% of revenue. High marketing costs were driven higher as it put its effort into evangelizing not just the cloud but the new social enterprise message (Salesforce dreams of the social enterprise). Its direct sales model also incurs high costs. And the company prioritises growth over profits, and growth costs.
In other areas the cloud pioneer continued to storm ahead. Its run rate exceeds $2.3bn and is expected to reach $3bn next fiscal year, while Q3 new customer wins exceeded its own expectations. Its social investments are delivering and are credited with powering Q3, and equally significantly enabling it to engage with customers on a more strategic level and thus pull in more large deals – one example was Verizon who signed up 80,000 subscribers to Chatter and 7,000 subscribers to Sales Cloud and Data.com. Although this was the largest of the quarter, there was a string of other new and extended business.
Europe looks like it dropped slightly, delivering revenue of $104 million, a 36% increase in dollar terms but 29% in constant currency. That rate is still enviable but suggests a slowing of the rate of growth in the region.
Overall, Salesforce.com is still powering ahead but the headwinds in terms of economic uncertainty and increased competition from other cloud platform providers – including Oracle’s expected Public Cloud – are getting stronger.