Tuesday, February 28, 2012

Salesforce’s Full Year Results

Its that time again when Marc Benioff comes out and tells us how great the revenue growth for Salesforce has been. It also means its time for me to pour over the numbers and see what else is happening.

To see how Salesforce fared last quarter, look here.

Full Year Results (2011)

Saesforce refer to this quarter as ‘Q4 2012’. The reason being that they end their financial year at the end of January. I am sure there is a good reason for this, I just do not know it.

For the details of the numbers, go here.

Unfortunately for Marc, Kris Kringle did not deliver the bumper end of year he needed to keep Salesforce out of the red and the business made a $11.6m loss on the back of $2.3b in revenue (about 0.5% loss). Here is the graph.

image

It seems the dam is still leaking but it is not getting any worse. The loss for the last three quarters has been around $4m and appears to be constant. In other words, while revenues are growing rapidly, the expenses of the business are keeping pace (but no longer overtaking). When one considers that in the two quarters prior to these profits were eroding at $10m per quarter, this is an improvement, although still no an ideal position to be in, in my opinion.

Earnings Conference Call

Listening to the conference call we heard:

  • David Hadlick, Head of Investor Relations
    • ‘Outstanding’ quarter
  • Marc Benioff
    • ‘Gorgeous finish’
    • Revenue growth
    • Cashflow increase
    • 2500 additional employees
    • Lots of large transactions this quarter
    • Raised guidance, $3b revenue this year
    • A few well known names examples of new customers
    • Second largest market share, taken from SAP, for CRM
    • 45 billion transactions in the cloud
  • Graham Smith
    • ‘Outstanding fourth quarter’
    • non-sales cloud business more than 40% of business
    • Some non-GAAP statistics
    • Cashflow up
    • ‘Great year with huge wins’
  • Questions
    • 9 figure deal with an ‘Illinois-based insurance company’
    • Benioff: ‘committed to increase our margins’ (but not right now)
    • Benioff: Wants deals of all sizes
    • Benioff: Focussed on current markets, not emerging markets

Obviously, everyone, including the analysts love the results (despite their share transactions suggesting otherwise). Other than the report of non-GAAP EPS and the great ‘margin vs growth’ question, there was barely a mention of profit but the constant drone of revenue and non-GAAP statistics. Benioff, again, affirmed that he is laser-focussed on growth and, while making a profit is a good idea, it is not an idea to act on right now.

The idea of consolidating existing markets rather than invest in emerging ones is an interesting one so it will be interesting to see how that turns out. Given China’s growth and ever-increasing prominence on the world’s stage, the Salesforce play may win the battle but I am not sure it will win the war.

One thing that was conspicuous in its absence was the mention of Microsoft. While Marc was happy to put the knife in SAP and Oracle and the wisdom of their acquisitions. Either he no longer considers Microsoft a threat or he sees the others as the ‘low hanging fruit’ in terms of spinning a marketing pitch. Other than dismissing Microsoft’s focus on China, Dynamics CRM went unscathed.

Conclusions

I will hold off looking at the subscriptions until post-Convergence as there is the chance Microsoft will actually provide some subscription numbers. My previous prediction of a full year loss was realised.

Based on the results and Salesforce’s reaction to it, the good ship Salesforce continues on its course. The leaks have been patched and the rate of sinking has been held at a constant. The only shift seems to be the competitive focus, which are the incumbents SAP and Oracle, rather than the CRM-upstart Microsoft.

The idea of ‘Minneapolis over Mumbai’ is an interesting one but, again, like their profitability, not sustainable in the longer term. Salesforce must eventually change course or they will hit an iceberg.

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