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Salesforce Forecasts Miss Estimates on Weak Software

May 23 (Bloomberg) -- Salesforce.com forecast profit and sales for the fiscal second quarter that missed some analysts’ estimates as an expansion into marketing software has been slow to take hold. Cory Johnson reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Salesforce.com Inc. (CRM), the largest maker of online customer-management tools, forecast profit for the fiscal second quarter that missed some analysts’ estimates as companies curtail spending on new business software.

Profit excluding some items for the period ending in July will be 11 cents to 12 cents a share, Salesforce said in a statement yesterday. That compares with analysts’ average estimate for profit of 12 cents, according to data compiled by Bloomberg. The shares fell the most more than a year.

Software makers including Oracle Corp. (ORCL), SAP AG (SAG) and Tibco Software Inc. (TIBX) have reported slack demand for their products as businesses absorb technology bought during a spending rebound that began in 2010. While Chief Executive Officer Marc Benioff’s cloud-computing tools have helped Salesforce capture market share, they haven’t compensated for the pause in purchasing as companies assess whether the U.S. economic recovery will justify more orders, according to Brent Thill, an analyst at UBS AG.

“Software and technology in the first quarter has been ice-cold,” said Thill, who is based in San Francisco and recommends buying the shares. “The expectations were a lot higher across the board for everyone. What we’ve seen universally is it’s been a tougher environment.”

Revenue will be $931 million to $936 million in the current period, the company said, compared with analysts’ average projection for sales of $934.4 million.

Shares in San Francisco-based Salesforce fell 5.3 percent to $42.25 at the close in New York, the biggest decline since June. Salesforce is up 2.9 percent this year, compared with a 2.2 percent gain for Oracle, while SAP is down 3.3 percent.

Newer Products

Billings, the amount invoiced to customers during the quarter, grew 17 percent to $762.8 million, compared with the $752.6 million average analysts’ estimate. Analysts calculate the billings, which Salesforce doesn’t directly report.

Salesforce reported profit excluding stock-based compensation, amortization and other charges of 10 cents a share for the fiscal first quarter, while revenue rose 28 percent to $892.6 million. Analysts had projected profit of 11 cents on $887.1 million in sales.

Benioff, who is expanding into marketing, customer service and human resources tools, told analysts on a conference call yesterday that the next version of Salesforce, due by the third quarter, will include more HR features from Rypple, a company it bought last year.

Marketing Push

Other deals are taking longer to pay off. Software maker Heroku Inc., which Salesforce bought for $212 million in January 2011, hasn’t yet reached $100 million in revenue, he said. Benioff said sales from acquisitions in online marketing are only about a 10th the size he’s seeking.

“To be No. 1 in marketing we’re going to have to achieve more than $1 billion in revenue in that cloud,” Benioff said on the call.

Salesforce has bought social-media marketing companies Buddy Media Inc. for $689 million last year, and Radian6 Technologies Inc. for $326 million in 2011.

“It’s unclear how well those are going relative to expectations,” said Thill. “To build the uber-marketing suite it’s going to require more organic growth or acquisitions.”

Benioff is spending heavily on sales and marketing to gain share and fuel growth. Salesforce has added to its core sales-management tools with newer products for responding to customer requests and creating marketing campaigns using social media services such as Facebook Inc., Twitter Inc., and Google Inc.’s YouTube video network.

Net loss in the fiscal first quarter widened to $67.7 million from $19.5 million a year earlier.

Taking Share

Nevertheless, Salesforce is outpacing competitors, with revenue in the business applications market increasing 32.3 percent last year, compared with 3.7 percent growth for Oracle and 2.2 percent at SAP, according to data compiled by Bloomberg Industries.

Salesforce raised its sales guidance for the 2014 fiscal year that ends next January to $3.84 billion to $3.88 billion, from its previous range of $3.82 billion to $3.87 billion.

“It’s not fair to assume the leader will continue to outgrow the market forever,” said Brad Zelnick, an analyst at Macquarie Capital USA in New York who has an outperform rating on the shares. “In order to keep up with their own pace of growth, they need to accelerate their share gains.”

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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