Salesforce at Record High as Marketing Bet Pays Off
Salesforce.com Inc. (CRM) jumped to a record high after quarterly results showed customers are seeking the marketing tools Chief Executive Officer Marc Benioff acquired to complement his customer-management software.
Salesforce, which bought e-mail marketing provider ExactTarget Inc. last month for $2.5 billion in its biggest deal ever, rose as much as 14 percent for the biggest intraday gain since November 2010 after issuing third-quarter sales and earnings forecasts that topped analysts’ estimates. The company also raised its guidance for the year.
Benioff is adding to his sales and customer-support products as he seeks to expand beyond $4 billion in sales this year. He’s pushing the San Francisco-based company’s presence in online software that companies pay to use on an annual basis, getting regular updates and new features, instead of installing programs on personal computers and servers. The ExactTarget deal will add $140 million to $145 million in revenue this year.
“In terms of foreseeing the future and making the right bets, Benioff’s truly been vindicated,” said Pat Walravens, an analyst at JMP Securities LLC, who has a market outperform rating on the shares, the equivalent of a buy.
“Benioff has repositioned Salesforce as the customer company. He loves having Burberry up on stage with him,” and selling online marketing tools to Coca-Cola Co. and others, Walravens said. ExactTarget adds customers including Nike Inc. and Gap Inc.
Salesforce surged 13 percent to $49.48 at 11:10 a.m. in New York, after reaching $49.75, the highest price since its initial public offering in June 2004.
The company is increasingly targeting “the largest and most important companies in the world” with its software, Benioff said on a conference call with analysts yesterday.
Revenue for the period ending in October will be $1.05 billion to $1.06 billion and profit excluding some items will be 8 cents to 9 cents a share, the company said in a statement yesterday. That compared with analysts’ average estimate for profit of 7 cents on sales of $1.04 billion, according to data compiled by Bloomberg.
Salesforce raised its full-year sales forecast to $4 billion to $4.03 billion, from $3.96 billion to $4 billion.
“We’re having an outstanding year of growth,” Benioff told analysts on the call. “But one thing Salesforce.com has never fully optimized for is enterprise distribution, and the ability to reach the largest customers.”
“More and more IT budget dollars will flow to the chief marketing officer over time and Salesforce.com has decided to target that person,” said Steven Ashley, an analyst at Robert W. Baird & Co., who has an outperform rating on the shares, the equivalent of a buy. “Marketing generates leads and hands them to sales, then they become customers and need service.”
For the fiscal second quarter through July, sales rose 31 percent to $957.1 million, compared with analysts’ average estimate for $938.9 million. Profit excluding some items was 9 cents a share, compared with analysts’ 7-cent projection.
Salesforce reported net income of $76.6 million, which included a $133.4 million tax gain. Analysts had predicted a $90 million loss.
Billings, a measure of the amount Salesforce invoiced customers during the quarter, increased 31.7 percent to $966.9 million, compared with analysts’ average estimate of $937 million.
The company’s “current valuation does not give full credit to Salesforce’s status as the largest pure-play software-as-a-service vendor,” Brent Thill, and analyst at UBS AG, wrote in an Aug. 13 note to clients. The company “has shown a good track record of integrating acquisitions and providing execs of acquired companies with significant responsibilities,” he said.
The stock had climbed 3.9 percent this year through yesterday, trailing the 9.5 percent return of the Standard & Poor’s 500 Information Technology Index.
ExactTarget helped to lift Salesforce’s revenue result and outlook, although Benioff probably had to pay a premium to buy the company, Walravens said.
“This is one area where it took him a while to figure it out, and as a result, he had to pay more money than we probably would have liked,” Walravens said.
In addition to ExactTarget, Salesforce has bought social-media marketing companies Buddy Media Inc. for $689 million last year, and Radian6 Technologies Inc. for $326 million in 2011. When Salesforce announced the ExactTarget deal in June, Benioff told analysts buying smaller companies was taking too long to tack on revenue.
Benioff is competing in the cloud-computing software market with companies including Oracle Corp. (ORCL), SAP AG and Workday Inc. Oracle CEO Larry Ellison in June hosted a conference call with Benioff as the companies mended fences. Salesforce signed a long-term deal to use Oracle’s software and Exadata computers, and Oracle began using Salesforce’s customer-management software. A former Ellison deputy, Benioff later became a competitor in customer-relationship software.
Salesforce surpassed SAP this year as the top seller of customer-relationship management software, according to market researcher Gartner Inc. In June, Salesforce hired Keith Block, a former Oracle sales executive, as president and vice chairman.
Salesforce plans to hold its annual Dreamforce user conference in San Francisco starting Nov. 18. Speakers include Yahoo! Inc. CEO Marissa Mayer and Facebook Inc. Chief Operating Officer Sheryl Sandberg, according to Salesforce’s website.
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