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Salesforce Tops Earnings Views, Revenue Growth Accelerates

Salesforce.com's (CRM) fast growth may be back on track.

Salesforce.com reported better-than-expected second-quarter earnings as well as faster revenue growth Thursday, seemingly answering concerns about a slowing pace.

The on-demand business software maker earned 9 cents a share minus items in the quarter ended July 31. That's down from 11 cents a year earlier but 2 cents above the consensus of analysts polled by Thomson Reuters.

Revenue rose 31% to $957 million, ending modest deceleration in the prior two quarters. Analysts had forecast $939.2 million.

Deferred revenue climbed 34% to $1.8 billion, vs. a year earlier. In Q1 deferred revenue grew 30%.

Salesforce sees Q3 adjusted EPS of 8-9 cents vs. 8 cents a year earlier. Analysts expect 7 cents.

The software maker pegged Q3 revenue of $1.050 billion to $1.055 billion, up 33%-34%. Analysts have expected $1.04 billion.

"We are having an outstanding year of growth," said CEO Marc Benioff on a conference call with analysts after the earnings release. "No other enterprise software company of our size is growing faster.

Shares rose 8% late to around 47.30, just below the record 47.58 set May 20. The stock closed up 2% ahead of results.

Salesforce is the leading provider of customer relationship management (CRM) software, which companies use to better manage their work with customers. Users access the software as needed via the Internet "cloud.

Investors had grown concerned that Salesforce's core CRM market might be maturing. As quarterly revenue nears $1 billion, accelerating growth has become more difficult, said Steve Koenig, an analyst for Wedbush Securities.

"It's harder to grow when you are that size," he said. "And the macroeconomy is impacting their ability to close larger deals.

But Salesforce can still find growth by selling its software-as-a-service subscription as a replacement for older license-based systems sold by Oracle (ORCL) and other rivals, said Karl Keirstead, an analyst for BMO Capital Markets.

"There is still a good opportunity to take share from Oracle and go after the small- to medium-sized business space," he said.

Salesforce has been scrambling to beef up other areas, including online marketing services.

Acquisitions have been a key. Last year it bought Buddy Media, a social media marketing firm, for $689 million. In 2011 it paid $326 million for Radian6, a social media monitoring service.

Last month it acquired ExactTarget, an email marketing services firm, for $2.5 billion.

Salesforce shares fell nearly 8% on June 4 on the ExactTarget deal announcement, as investors questioned if it were a "smokescreen," said Keirstead.

"Investors wondered whether Benioff elected to do that in order to mask a deceleration in their core CRM business," he said.

Other analysts say Salesforce's acquisitions are designed to create a one-stop shop to sell online business marketing services.

In the last few months, Salesforce has beefed up its Chatter business collaboration service and launched a service to help companies advertise on social media sites Facebook (FB) and Twitter.

The moves could help Salesforce re-accelerate sales growth, says Trip Chowdhry, an analyst for Global Equities Research.

Online marketing "is about a $30 billion to $40 billion (global annual revenue) addressable market," he said, "and Salesforce.com is ideally suited to capture this market.

Benioff agreed. "The Salesforce platform is the world's No. 1 platform for developing enterprise cloud apps and the only platform with built in social and mobile capabilities right at the core.

Subscription and support revenue in the quarter climbed 31.3% to $902.8 million.

Revenue from professional services rose 22.8% to $54.2 million.

In Q2, Salesforce's R&D expenses rose 48.9% to $140 million. Sales and marketing spending grew 26.4% to $480.6 million.