Shows No Signs Of Slowing Down

Hosted CRM application vendor posts robust 3Q sales and profit growth, predicts more for next year

Tony Kontzer, Contributor

November 16, 2005

2 Min Read continues to lead the march toward on-demand software. The on-demand customer-relationship-management application vendor on Wednesday posted yet another record quarter, with revenue topping $80 million for the first time, and profit exceeding $6 million.

For the quarter ended Oct. 31, Salesforce posted a profit of $6.3 million on revenue of $82.7 million, compared with a profit of $2.2 million on revenue of $46.4 million in the same period one year ago. The company added 1,800 new customers and 43,000 subscribers during the quarter, bringing its subscriber base to more than 350,000.

Heading into the traditionally slow fourth quarter, Salesforce execs are expecting a slight slowdown in revenue growth, predicting that sales for the current quarter will fall between $88 million and $90 million. For its fiscal year ending Jan. 31, 2006, Salesforce expects revenue to be between $307 and $309 million.

The company also provided guidance for fiscal 2007, predicting that revenue will be in the range of $460 million to $465 million. And CEO Marc Benioff indicated during a conference call with analysts that he expects Salesforce's recent investments to yield continued long-term growth.

The company has spent millions building a new Northern California data center and a mirrored facility in Virginia, both of which take advantage of new hardware technology and provide an expanded infrastructure that can support Salesforce's growing customer base. (The company migrated all of its applications and customers' data to the new California data center last weekend.)

On the software side, the most significant investment has been the company's pending Appexchange, an on-demand clearing house for applications that can tap the Salesforce infrastructure. Benioff believes Appexchange can become his company's second "killer app" (joining the core CRM app), a sort of operating system for on-demand apps, but that "it's not going to happen overnight," he said during Wednesday's conference call. "That's not how it was built."

Those investments, combined with the major shift Oracle's acquisition of Siebel brings to the CRM marketplace, could create significant opportunities for Salesforce. But other evolving factors, such as SAP's ongoing promises to deliver an on-demand version of its CRM software and Microsoft's emerging roadmap for delivering its just-announced Microsoft Live family of on-demand tools, could eventually put additional competitive pressure on Salesforce. Which is why Benioff said the company can't rest on its laurels. "We are in aggressive expansion and investment mode. This is really becoming our time," he said. "But we have to execute."

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