Salesforce Surges as Large Revenue Deals Help Drive Growth

  • Company raises annual revenue forecast for fiscal 2017
  • First-quarter sales top estimates, jump 27% to $1.92 billion

Salesforce.com Inc. is targeting the biggest of customers to get big itself.

The company, once known for selling business productivity software to small- and medium-sized clients, is getting more traction with large companies while drawing closer to an annual sales goal of $10 billion. Salesforce said it landed the most large deals ever in a three-month period during the fiscal first quarter, including one worth at least $100 million. The company also Wednesday forecast revenue in the current quarter that topped analysts’ estimates, sending shares up as much as 6.6 percent in extended trading.

Chief Executive Officer Marc Benioff is benefiting from a multiyear effort to persuade corporations to adopt software delivered over the Internet, or the cloud. During a call with analysts, the company touted new deals with Samsung Electronics Co., Uber Technologies Inc. and Amazon.com Inc. that expanded on existing relationships.

“They’re really firing on at least most of their cylinders -- if not all of their cylinders,” said Steven Koenig, an analyst at Wedbush Securities Inc. “They’re making good progress.”

Sales will be $2.01 billion to $2.02 billion in the fiscal second quarter, the San Francisco-based company said in a statement. Analysts on average had estimated $1.98 billion, according to data complied by Bloomberg. Revenue increased 27 percent to $1.92 billion in the fiscal first quarter ended April 30, topping the average estimate of $1.89 billion.

Large Transactions

“Over the last three years -- as successful as the company has always been -- we have put a particular emphasis on the enterprise and a focus on expansion in our international markets,” Keith Block, president and chief operating officer, said on a conference call with analysts. He said the company hasn’t neglected small- and medium-sized businesses as it has sought bigger clients. “We are built to last -- that’s been part of the strategy from 17 years back.”

Salesforce reported first-quarter profit, before certain costs, of 24 cents a share, beating analysts’ average projection of 23 cents. Unbilled deferred revenue, a closely watched number that indicates the amount of business booked, but not yet recognized, increased 27 percent to $7.6 billion. Net income was $38.8 million, or 6 cents a share, compared with $4.1 million, or 1 cent, a year earlier.

The current quarter includes the effects of a service disruption earlier this month that affected customers in North America. The problem prompted apologies as the company worked to address the challenge that lasted several hours. The disruption is financially immaterial, Chief Financial Officer Mark Hawkins said in an interview.

“We want to take good care of our customers -- and that’s our focus,” Hawkins said. “It’s a very small set of customers.”

Benioff said the company will continue to look for new ways to work with Amazon’s cloud services, which provide computing power and storage for customers. He said to expect more announcements in the future around the two companies’ growing partnership.

Second-Quarter Forecast

Fiscal second-quarter profit, excluding certain items, will be 24 cents to 25 cents a share, Salesforce said, compared with an average estimate of 25 cents. For fiscal 2017, the company forecast profit of $1 to $1.02 per share, compared with predictions for $1.01.

The company raised its forecast for fiscal 2017 revenue to $8.16 billion to $8.2 billion, from $8.08 billion to $8.12 billion. The average analyst projection was $8.13 billion.

Salesforce continues to invest in technology as it looks for new growth opportunities. Last month, the company acquired MetaMind, an artificial-intelligence startup that specializes in deep-learning services, according to the startup’s website. The acquisition will help it offer AI capabilities to automate and personalize customer support, marketing and many other business processes. That follows the 2014 purchase of RelateIQ Inc., which made predictive tools that have been integrated with its products.

The products work “across all activities where enterprises engage with their customers,” said John Rizzuto, an analyst at Suntrust Robinson Humphrey Inc. “We expect larger entities to be spending greater dollars with Salesforce.”

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