Salesforce Posts Wider Loss

Zacks

Salesforce.com Inc. (CRM) reported third quarter fiscal 2013 adjusted loss per share of 31 cents, significantly wider than the Zacks Consensus Estimate of a loss of 10 cents a share.

Revenues

Revenues in the quarter were $788.0 million, up 35.0% from the year-ago quarter. The quarter’s result was above the company’s guidance range of $773.0 million to $777.0 million.

Geographically, the company witnessed decent revenue growth in all of its operating regions. Revenue in the American region increased 37.8% to $547.4 million. Revenue from the European region was $133.8 million, up 28.8% from the year-ago quarter. Asia contributed $107.2 million to revenue, an increase of 28.7% from the year-ago quarter.

Operating Results

Gross profit expanded 32.1% year over year to $602.1 million. Gross margin was 76.4%, down 160 basis points from the year-ago quarter.

Total operating expenses rose 40.9% year over year to $656.3 million on the back of 50.0% rise in research and development expense (R&D), 40.7% increase in sales and marketing expense and 222.8% rise general administrative expense. Continuous increase in headcount from recent acquisitions drove the operating expenses higher.

Operating loss of $54.2 million during the quarter was narrower than the year-ago quarter loss of $10.2 million. Operating loss margin was 6.9% versus 1.7% in the prior-year quarter.

GAAP net loss in the quarter was $220.3 million or $1.55 per share compared with net loss of $3.8 million or 3 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, adjusted net loss was 31 cents per share compared to a profit of 19 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $605.6 million, down from $1.1 billion in the prior quarter. Accounts receivable decreased to $418.6 million from $446.9 million in the prior quarter. Total deferred revenue in the quarter was $1.29 billion, down from $1.34 billion in the previous quarter.

Cash from operating activities was $105.9 million compared with $136.2 million in the prior quarter.

Guidance

Net loss for the fourth quarter of fiscal 2013 is projected between 23 and 25 cents per share. Non-GAAP EPS is expected to range from 38 to 40 cents per share.

Again, fourth fiscal quarter revenue is projected to be in the range of $825.0 million to $830.0 million, increasing of 31% year-over-year.

For fiscal 2013, GAAP net loss per share is projected between $2.02 and $2.00 per share. Management expects non-GAAP EPS to be $1.50 to $1.52 per share.

Again for the full year 2013, revenue is projected to be in the range of $3.041 billion to $3.046 billion, which increased 34.0% on a year-over-year basis.

For the full fiscal year 2014, revenue is projected to be in the range of approximately $3.80 billion to approximately $3.85 billion.

Management was encouraged by the strong response for the company’s next generation social and mobile cloud technologies.

Conclusion

Salesforce.com reported modest third quarter 2013 results. Loss per share was wider than the Zacks Consensus Estimate. The fourth quarter guidance was modest.

However, the revenue grew across geographies, which was a positive factor. The company also received strong business from its cloud customers.

However, a dull business environment in Europe, currency headwinds, not-so-encouraging tech expenses and stiff competition from its peers keep us concerned.

Though we are encouraged by Salesforce’s growth prospects in the cloud market, the entry of tech giants such as Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ) into the cloud space would further increase competition.

Currently, Salesforce.com has a Zacks #4 Rank, implying a short-term Sell rating.

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