Salesforce Tumbles After Billings Miss Analysts’ Estimates

Salesforce.com Inc. (CRM), the largest maker of online customer-management software, fell the most in more than three years after customer billings missed some analysts’ estimates, a sign future revenue growth may slow.

Billings rose 29 percent in the fiscal third quarter from a year earlier, said Pat Walravens, an analyst at JMP Securities LLC, who has an “outperform” rating on the shares. That missed his 33 percent growth estimate. The figure is seen as a benchmark of momentum at the company, whose shares had climbed more than 10 percent in the past six weeks before today.

“Salesforce.com guided revenue up and did everything it could to convince investors that the tone of business remains strong,” Walravens said in a research note today. “Investors should consider using this pull-back as a buying opportunity.”

Chief Executive Officer Marc Benioff has been hiring sales staff and stepping up the pace of acquisitions in a bid to widen the company’s lead in cloud computing, which lets customers rent software delivered over the Web rather than install it on their own machines. The moves are squeezing profit margins, and the lack of payoff in billings disappointed investors.

“For a stock that’s priced to perfection, priced at 30 times cash flow, this is a disappointment,” Brad Zelnick, an analyst at Macquarie Capital USA in New York, said on the “Bloomberg West” television program yesterday. “Billings is the leading metric.”

Salesforce dropped 10 percent to $113.43 at the close for the biggest decline since Oct. 15, 2008. The shares have lost 14 percent this year.

Bad Benchmark?

On a conference call with analysts, Benioff said he expects growth to accelerate next year. He also said tracking deferred revenue, a component of billings, isn’t the best way to monitor the company’s health. Salesforce has bought businesses such as Radian6 Technologies Inc. and Heroku Inc. that don’t contribute to its deferred revenue account.

“It’s not a great indicator of the performance of the company,” Benioff said. “All indications to us are that our business is going great.”

Excluding certain costs, profit will be 39 cents to 40 cents a share in the current quarter, which ends in January, the company said. Analysts on average had estimated earnings of 40 cents, according to Bloomberg data. Revenue will be $620 million to $624 million, topping the $609.4 million projection.

For fiscal 2013, Salesforce said revenue will be $2.88 billion to $2.92 billion. The average estimate of analysts is $2.78 billion. The company will reach a $3 billion “run rate” in sales next year, Benioff told analysts.

Good Guidance

“Despite the weaker-than-expected billings, Salesforce.com guided to fiscal 2013 revenue well above expectations,” Walravens said in an e-mail.

Salesforce’s operating margin, excluding some items, narrowed to 11 percent in the third quarter, down 4 percentage points from a year ago, Chief Financial Officer Graham Smith said on the call. The company is spending more on sales, marketing, research and data-center capacity, he said.

“Hiring continues to ramp,” Walter Pritchard, an analyst at Citigroup Inc. in San Francisco, said in a report yesterday. Weakness in the consulting business contributed to the missed billings number in the third quarter, he said. Billings could reaccelerate in the current period, he said.

For the third quarter, which ended Oct. 31, Salesforce posted a loss of $3.76 million, or 3 cents a share. Sales rose 36 percent to $584.3 million. Before certain items, profit was 34 cents, the company said. Analysts on average estimated profit of 31 cents and revenue of $571.4 million.

Social Networking

The company has been making acquisitions to enhance its Chatter application and other social-networking software, which let customers incorporate data from Facebook Inc., Twitter Inc. and LinkedIn Corp. into their sales software. On Nov. 14, Salesforce agreed to buy closely held Model Metrics Inc., a provider of consulting services for social-media software. Benioff said Salesforce signed a 20,000-user deal for Chatter with General Electric Co. during the third quarter.

The company is also fending off fresh competition from database-software maker Oracle Corp. (ORCL), whose CEO, Larry Ellison, is unveiling a new line of Web-enabled software called Fusion. On Oct. 24, Oracle agreed to spend $1.5 billion to buy Salesforce rival RightNow Technologies Inc.

A feud between Oracle and Salesforce escalated last month after Benioff was scrubbed from a scheduled appearance at Oracle’s OpenWorld show in San Francisco. Benioff said it was because he criticized Ellison for selling expensive computers instead of just promoting online services.

“I don’t think we can ever count Larry Ellison out,” said Macquarie’s Zelnick.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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