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Salesforce Offers Upbeat Signal On Prospects for Tech Spending -- WSJ

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08/23/2019 | 02:48am EDT

By Sarah E. Needleman

Salesforce.com Inc. raised its full-year revenue outlook after reporting record results in the latest quarter, a positive sign for enterprise-technology spending as some companies in recent weeks warned of weakening client sentiment.

The business-software provider said Thursday revenue in the July quarter rose 22% from a year earlier to $4 billion, beating analysts' consensus estimate of $3.96 billion and the company's internal guidance.

Salesforce also surprised Wall Street with a second-quarter profit, though it was off 70% to $91 million, or 11 cents a share. The company had expected it would swing to a loss, in part, from accounting charges related to its $300 million buy of Salesforce.org, a public-benefit corporation that was a reseller of Salesforce software to the nonprofit and education sectors.

Excluding stock-based compensation and other items, Salesforce said its quarterly profit was 66 cents a share, higher than the 47 cents a share analysts polled by FactSet had forecast.

Shares increased nearly 7% in after-hours trading.

Salesforce's revenue and stock price have risen in recent years as companies accelerate spending on digital transformations. The 20-year-old company, whose reputation grew from providing customer-relationship management tools, has also been positioning itself, similar to German rival SAP SE, to be a dominant provider of cloud-computing applications.

"Whatever is going on around the world, we see a buying environment where we see CEOs investing -- and top of mind for them is digital transformation," Salesforce Co-Chief Executive Keith Block said on a conference call with analysts. "That's why they're turning to us and that's why you're seeing these results."

For the current year, the San Francisco company raised its forecast for revenue to be between $16.75 billion and $16.9 billion, up from between $16.1 billion and $16.25 billion. However, the company also cut its earnings outlook as it works to digest a series of acquisitions.

Salesforce closed its largest purchase to date earlier this month, buying data-analytics platform Tableau Software Inc. for more than $15 billion in stock. Less than a week later, it struck a $1.35 billion cash-and-stock deal to buy ClickSoftware Technologies Ltd.

Salesforce said Thursday it expects full-year earnings of 28 cents to 30 cents a share, off from its prior guidance of 78 cents to 80 cents a share.

The quarterly results are also a sign of relief for investors because Salesforce beat expectations despite concerns around potential softness in international markets and headwinds related to currency exchange rates, Stephens analyst James Rutherford said.

The report comes after firms including networking-gear maker Cisco Systems Inc. and data-storage company NetApp Inc. raised concerns earlier this month about potentially tepid growth in information-technology spending.

World-wide spending on enterprise-application software is expected to rise 8.8% this year to $210.69 billion, according to Gartner Inc., but that pace is slower than the nearly 13% growth a year earlier. Salesforce is the fifth-largest enterprise-application-software company in the world by revenue, with 5% of the market, the research firm said.

One area where Salesforce still has room for growth is overseas, according to Wedbush Securities analyst Steve Koenig. "Their exposure internationally is still relatively limited to what it can be longer term," he said. "These guys have a lot of legs."

Earlier this month, Salesforce hired an executive to lead its unit covering the U.K. and Ireland, where it last year announced plans to invest $2.5 billion to increase hiring, data-center capacity and office space to support a growing customer base.

Salesforce also this month hired an executive to run a unit covering Australia and New Zealand to drive growth.

In addition to Tableau and ClickSoftware, Salesforce has made several other acquisitions in recent years to provide its customers with more tools and services. It bought cloud-application builder MuleSoft Inc. in a $6.5 billion deal last year, and acquired e-commerce platform Demandware Inc. for $2.8 billion in 2016.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CISCO SYSTEMS -0.30% 49.19 Delayed Quote.13.87%
E.ON SE 1.40% 9.075 Delayed Quote.3.74%
GARTNER INC 0.69% 140.13 Delayed Quote.8.86%
NETAPP -0.91% 54.43 Delayed Quote.-7.94%
SALESFORCE.COM 0.54% 153.6 Delayed Quote.11.54%
SAP AG 0.55% 109.1 Delayed Quote.24.81%
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Financials (USD)
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EBIT 2020 2 760 M
Net income 2020 276 M
Finance 2020 4 345 M
Yield 2020 -
P/E ratio 2020 501x
P/E ratio 2021 224x
EV / Sales2020 7,67x
EV / Sales2021 6,01x
Capitalization 134 B
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Marc Russell Benioff Chairman & Co-Chief Executive Officer
Keith G. Block Vice Chairman, Co-President, Co-CEO & COO
Alexandre Dayon Co-President & Chief Strategy Officer
Mark J. Hawkins Co-President & Chief Financial Officer
Cindy Robbins Co-President & Chief People Officer
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