Salesforce Raises Revenue Forecast Ahead of Potential Offers

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Is Salesforce the Ultimate Cloud Computing Investment? Inc. raised its sales forecast for fiscal 2016 as large enterprises signed up for the company’s products, underscoring its potential appeal as a takeover target.

Shares rose 6 percent after the company said revenue for the year through January will be $6.52 billion to $6.55 billion, compared with the previous outlook for $6.475 billion to $6.52 billion. First-quarter sales rose 23 percent to $1.51 billion, topping analysts’ projection for $1.5 billion, according to estimates compiled by Bloomberg.

Chief Executive Officer Marc Benioff and President Keith Block have spent the past two years expanding into new markets with new products for marketing, corporate social networks and data analytics. The new growth areas, plus Salesforce’s leading position in Web-based customer relationship management software, make it a possible takeover candidate for Microsoft Corp., Oracle Corp. and bigger software rivals. Salesforce has retained financial advisers to help it field takeover offers, people with knowledge of the matter have said.

Salesforce had an “all-time high in seven-figure plus transactions” for the quarter, thanks to renewed focus on partnerships and international expansion, Block said in an interview. He declined to comment on “rumors and speculation in the marketplace.”

About 30 percent of Salesforce’s top deals in the quarter were with new customers, Block said on a conference call. Billings, which reflect the amount Salesforce billed customers during the quarter, climbed 21 percent to $1.25 billion, exceeding analysts’ average projection for a gain of 15 percent.

Legacy Products

Salesforce should be able to generate non-GAAP operating margins in the mid-30s as it becomes a larger company, Chief Financial Officer Mark Hawkins said on the call.

The shares of Salesforce climbed to $74.59 in extended trading. The stock declined 1.9 percent to $70.16 at the close in New York, leaving it up 18 percent this year, compared with a 3.3 percent gain in the Standard & Poor’s 500 Index.

The company reported income of $4.09 million in the first fiscal quarter, versus a loss of $96.9 million a year earlier. Profit excluding certain costs was 16 cents, compared with the the company’s estimate for 13 cents to 14 cents, and analysts’ average projection for 14 cents.

Growth in new areas such as marketing and services was sufficient to make up for a slowdown in the main customer relationship management business, where sales rose 9.3 percent, compared with growth rates of 29 percent to 38 percent for newer products. CRM sales are sluggish because many companies have already replaced legacy systems based on technologies such as Siebel, according to Steve Koenig, an analyst at Wedbush Securities Inc. who has a hold rating on the stock.

$10 Billion

Salesforce plans to be the fastest software company to get to $10 billion in revenue, Benioff said on the call. He said his dream is to overtake SAP SE to become the world’s largest seller of business software. SAP had sales of $23.4 billion in its 2014 financial year.

Earlier in the day, SAP CEO Bill McDermott said Salesforce’s revenues would come under pressure in the future. He had held meetings in the past year with Benioff to discuss possible strategic alliances and a potential acquisition, then said earlier this month the company has “zero interest” in acquiring Salesforce.

“The only innovation SAP has is in rhetoric, they should try writing some software,” Benioff said.

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