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Salesforce's $835 million quarterly revenue tops forecasts

By Gerry Shih

(Reuters) - Salesforce.com Inc reported better-than-expected quarterly sales of $835 million on Thursday, as its cloud-based services continued to sell well despite an uncertain macroeconomic picture.

Its shares gained 4.9 percent after hours to $177.50, after closing up 1.4 percent at $169.22 on the New York Stock Exchange.

The company, which provides sales and marketing software to companies such as The Coca-Cola Co and Ford Motor Co, has boasted one of the fastest rates of top-line growth in the technology industry, with full-year revenue rising 35 percent from a year ago to $3.05 billion.

For its 2014 fiscal year, which began February 1, Salesforce said it expected sales to continue growing to between $3.82 billion and $3.87 billion, in line with Wall Street forecasts of $3.85 billion, according to Thomson Reuters I/B/E/S.

Under Marc Benioff, Salesforce's CEO and founder, the company's record of revenue growth has won favor among Wall Street investors, who have driven up its share price to roughly 90 times forward earnings, one of the highest multiples in the tech sector.

But questions are mounting over how long the 14-year-old company can keep its shares surging, especially considering Benioff's failure to produce consistent profits.

Considered the leader in cloud computing, Salesforce is facing rising competition from Oracle Corp, SAP AG and Microsoft Corp, which are intensely pursuing Salesforce's customers and making splashy acquisitions to match Salesforce's product offerings.

In recent years, Benioff has steered his company to cater more to marketing rather than sales departments. Through acquisitions and internal research and development, Salesforce has, for instance, introduced tools that automate social media ad campaigns or monitor Twitter chatter.

Benioff said on Thursday's earnings call that his company sold new service contracts to Philips Electronics NV, Unilever NV, Intuit Inc and others.

MORE ACQUISITIONS

Despite soaring revenue, Benioff, a one-time sales executive at Oracle, has often been criticized for delivering underwhelming bottom lines. Salesforce reported another quarterly loss on Thursday: a net loss of $20.8 million or 14 cents a share for the fourth quarter, widening from a loss of $4.08 million or 3 cents a share a year earlier.

The company said that $108 million in stock-based compensation expenses and a one-time tax charge had eaten into its margins. Excluding those and other items, it earned 51 cents a share, beating the Street's estimate of 40 cents.

Some analysts said they were willing to overlook a lack of short-term profits and applauded Benioff for aggressively expanding beyond the sales management software market and into the massive new field of marketing software.

"New sales production was very good. All the metrics were very good," said Steve Koenig, an analyst at Wedbush Securities.

"If you're looking at valuing Salesforce, you don't want to look at the next year. You have to look at the long term, in terms of grabbing more and more market share not only in CRM but going beyond those markets."

Benioff, who made a series of major acquisitions in 2012 that included a $745 million deal for Buddy Media, a social media marketing software company, pledged on Thursday to continue investing heavily to expand his product line, including through acquisitions.

"I think we're going to buy small and big," Benioff said. "We're going to be aggressive. We need to look at everything."

Although Salesforce has won new customers and headlines with its expanded product strategy, the early results of its aggressive expansion are still unclear. The company disclosed in October that Buddy Media was losing money at a rate of $40 million a year, and Chief Financial Officer Graham Smith said Thursday that Buddy Media contributed just $11 million to Salesforce's fourth-quarter revenue and $20 million for the year.

"I think they're well-positioned but they have work to do to tie in this marketing area," said Koenig. "The offering is not truly cohesive yet."

Benioff suggested that mobile software will be a key part of this year's expansion. The company this week introduced new capabilities in its customer service software so representatives could talk to customers in mobile apps.

"We pioneered the shift to the cloud, we pioneered the shift to social, and we pioneered the shift to mobile," Benioff said.

(Reporting by Gerry Shih; Editing by Phil Berlowitz and Edmund Klamann)

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