Salesforce.com’s ebullient CEO Marc Benioff routinely shrugs off concerns over patchy profitability but the level of losses is piling up and causing market jitters that he will have to work hard to calm. Shares fell c5% in after market trading following the release of its Q2 results.
Revenue for the period ending July 31 surged forward as was expected and came in 34% up on the year ago quarter, at $731.6m. However the net loss figure was busy surging in the opposite direction to end $9.8m in the red (see Salesforce.com trajectory good but posts a net loss). This compares to a loss of $4.3m on revenue of $546m in the year ago quarter. There have been several acquisitions in the meantime. However, the results do not reflect Salesforce.com’s most expensive acquisition to date, the $689m Buddy Media purchase (see here), which closed in early August. Its Q3 earnings forecast of 31 to 31 cents per share is below market expectations of 34 cents. When explaining the reasons behind the earnings forecast, Salesforce.com cited faltering spending in Europe and foreign exchange fluctuations.
Revenue from Europe came in at $125m vs. $102m in the year ago quarter but now represents 17% of total revenue for the group rather than the 19% of last year. Europe was the slowest growing region but even it managed 22% revenue growth so it is hardly in the doldrums.
There is a lot more to come from Salesforce.com, particularly around the emerging area of social marketing where the Buddy Media (and the previous Radian6) acquisition will have a big part to play. It is also continuing to strengthen its credentials in the large enterprise market - it announced it had closed one of its largest transactions during the quarter (with a networking technology provider), and added Nestle as a customer (although the deal size was not revealed it is sure to have been large).
Once again top line growth cannot be faulted but the rising costs are becoming more of a concern for investors and Salesforce.com watchers. Salesforce.com’s ability (or not) to deliver consistent profits will be taken as a guide to the commercial viability of the pure cloud model as it currently stands.