Salesforce.com's Fiscal Year Ends With Record Quarter

Salesforce.com Inc. continued to demonstrate its momentum in the customer-relationship-management software market Thursday when it reported record quarterly profits, revenue, and customer wins that helped it post year-end numbers exceeding Wall Street's expectations.

For fiscal 2005 ended Jan. 31, Salesforce posted a profit of $7.3 million, or 7 cents a share, on revenue of $176.4 million, compared with a profit of $3.5 million (4 cents a share), on revenue of $96.0 million a year earlier.

For the fourth quarter, the company posted a profit of $3.6 million, or 3 cents a share, on revenue of $54.6 million, compared with a loss of $765,000 (2 cents a share) on revenue of $30.1 million one year earlier. The company added 32,000 subscribers during the quarter, bringing its total subscriber roster to 227,000, up 79% from a year earlier and 16% from the third quarter.

During a conference call to report the results, analysts expressed concerns about the company's ability to fend off competition from the likes of Siebel Systems Inc., whether customers' data is secure under Salesforce's shared data-center model, and how the company will continue to manage its accelerating growth.

But CEO Marc Benioff attempted to fend off any skepticism, saying that Siebel still has fewer subscribers--just north of 28,000--than Salesforce added in the last quarter. He expressed confidence in the security measures in place to protect customers' data from the prying eyes of competitors. And he said the company's executive team consists of handpicked industry veterans who have experience dealing with meteoric growth.

Many analysts on the call seemed convinced that the company's success has legs, with UBS Warburg's Heather Bellini noting the promise of Salesforce's improving fortunes in winning deals involving 500 to 1,000 seats. Benioff said that trend was the latest validation of Salesforce's view of the world. "This is an indication that the on-demand model is moving toward the enterprise, and this is very exciting for us."

An additional area of concern is Salesforce's tendency to spend far more on marketing and sales than it does on research and development. That trend continued in fiscal 2005 as the company said it spent $96.3 million on marketing and sales for the year, and just $9.8 million on R&D. Benioff said future R&D spending would be geared toward building on the road map he outlined at the company's user conference last fall, when he introduced a strategy to evolve Salesforce into an on-demand computing platform rather than strictly a CRM app. He didn't say whether the company would increase its R&D spending this year, but he expects to invest in building additional capabilities into Salesforce's Customforce customization tools and Sforce application-development platform.

The better-than-expected results caused Salesforce to raise its fiscal 2006 guidance. The company now expects revenue for the year ending Jan. 31, 2006, to fall between $282 million and $287 million, up from earlier guidance of $275 million to $285 million. Revenue for the first quarter ending April 30 is expected to be between $58 million and $60 million.