Salesforce.com reported Q3 results last night and the market wasn’t quite sure how to take them, with the share price rising c1% initially before dropping c3%. The cloud pure-play is still moving ahead on the top line and hit the milestone of its first $1bn quarter but this was helped by revenue from the ExactTarget acquisition (see here).
Revenue was up 36% yoy to $1.08bn (vs. 34% in Q3 last year – see here), aided by a larger than expected contribution of $81m from ExactTarget sales. Excluding ExactTarget, revenue growth would have been a more moderate 26%. The numbers indicate growing market interest in marketing solutions and will help allay some of the concerns about the $2.5bn Salesforce.com paid for ExactTarget but they also show how much Salesforce.com is depending on the acquisition. The company has raised FY guidance, largely because of the ExactTarget contribution.
Subscriptions and support ($1bn) represent 93% of overall revenue vs. 94% in the year ago quarter, while professional services and other revenue are now 7% of the total vs. 6%, having risen to $72m, with a 50% revenue increase. As more large customers with more complex demands come on board we expect this metric will rise. The announcement of the mobile Salesforce1 platform for connecting applications, cloud services and the 'internet of things’ in general at the Dreamforce event this week (more of that in another post), may impact these ratios.
The ‘tension’ between revenue and profit is still very apparent but CEO Marc Benioff again dismissed it as an issue, stating the importance of balancing growth and profitability. Despite saying he believes the company has the balance right, he acknowledged that “we also know that there’s more that we can do on profitability.” The net loss narrowed to $124m (vs. $220m) due to the company setting aside less for tax payments and the additional revenue from acquisitions and but the operating loss increased from $54m to $98m. Operating expenses continue to rise - up 38% - and R&D costs increased by 50%.
Salesforce.com is still riding the wave but as it grows (it is predicting a $5bn year in fiscal 2015) it will get harder - or more costly - to maintain these high growth rates.