Salesforce.com Reports Torrid Q1 Growth, Slams SAP

Defying doubters and beating Wall Street expectations, Salesforce.com reported that its first-quarter revenue rose 38% from the year-earlier quarter, to $695 million, though it also reported a net loss, due in part to aggressive hiring and increased marketing expenses to support its growth. Salesforce also raised its revenue guidance for the year and reported a growing number of enterprise deals and greater sales diversity.

Salesforce's share price had fallen 9.1% on May 10 after Cisco CEO John Chambers warned of cautious IT spending due to economic conditions in Europe. But CEO Marc Benioff told analysts on May 17 that they shouldn't compare Salesforce to other software companies, let alone slow-growing hardware manufacturers. "When you have this level of growth and differentiation from competitors, our greatest challenge is just the ability to close new business," Benioff said.

Benioff described the company as "distribution constrained"--it doesn't have enough employees to close new business. So Salesforce is hiring aggressively, adding 500 employees in the first quarter. That hiring, coupled with increased marketing spending, contributed to a 40% increase in operating expenses and a net loss of $19.5 million, compared with a year-earlier profit of $530,000.

Salesforce still expects to record a profitable year, with adjusted earnings of 38 cents to 39 cents a share and revenue of $724 million to $728 million. It raised its full-year revenue guidance by $50 million, to between $2.97 billion and $3.00 billion.

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"We're on track for full-year revenue growth rate of 32%, and I'm sure everyone recognizes that there aren't too many enterprise software companies delivering that kind of growth this year," Benioff said.

In a sign that the software-as-a-service provider is moving beyond the salesforce automation niche, CFO Graham Smith reported that more than 40% of new business in the quarter came from other products--in the areas of customer service, collaboration (Chatter), marketing (tied mainly to its Radian6 business), and platform as a service (the Force.com and Heroku development platforms).

Pointing to a "changed world" as indicated by Facebook's IPO, Benioff said Saleforce is tapping into interest in social, mobile, and cloud computing, and he took a shot at companies trying to "sell the past." He put SAP in that category, noting that Salesforce is helping large SAP customers such as Kimberly-Clark develop a "social, next-generation front office" even as they continue to run their back offices on on-premises ERP systems.

Dismissing SAP's cloud computing announcements at SAPPHIRE this week, Benioff said: "If the newest and most exciting thing at SAP is the acquisition of SuccessFactors, then God help SAP. That was a sub-$1 billion company that makes human performance-management software that you log into once a year."

Benioff said he sees a multibillion-dollar opportunity for Salesforce in the marketing area and agrees with the prediction that chief marketing officers will soon be spending more on technology than CIOs. This trend plays into Salesforce's investments in social listening company Radian6, the Heroku platform for building interactive marketing applications, the Site.com Web publishing service, and the Data.com cloud database.

"The questions for us are how do we build a full marketing suite, how do we become the marketing desktop, and how do we build the marketing front office," Benioff said. "We'll have a lot to say about that at Dreamforce in September."