Salesforce.com (NYSE:CRM) announced its earnings for Q3 2011, posting impressive year-on-year revenue growth of around 36%. It continues to add new customers at a rapid clip, gaining marketshare in the on-demand CRM market, where it competes primarily with SAP (NYSE:SAP), Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT). It also revised its revenue guidance for FY12 to $2.25 billion, which is slightly higher than our estimates. [1]
However, its sales and marketing expenses as a percentage of its revenues grew to nearly 52%. Due to the ballooning operating expenses, it posted a net loss of around $4 million this quarter, which is weighing on shares in pre-market trading.
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Following the earnings, we have revised our Trefis price estimate for Salesforce.com to $121, which stands nearly 5% below its current market price.
CRM and Other Cloud Offerings Show Impressive Growth
Salesforce.com is a leader in on-demand CRM market, and has around 15% share of the overall CRM market. This quarter, it reported many new major customer additions for the CRM Sales and Service Cloud offerings, including Verizon, Telstra, Adobe, Avaya, Kaspersky Labs, Electronic Arts, GE, Western Digital etc. We expect it to increase its market share throughout the forecast period.
Its other cloud based offerings like Force.com, AppExchange, Database.com, Heroku and Data.com continue to generate customers. It announced that Heroku was now integrated with Facebook’s development platform, which could potentially lead to substantial customer growth. It also unveiled Do.com, a social productivity app and announced the acquisition of Assistly and Model metrics, which should help it improve its customer service offerings, and also help it improve its apps on mobile platforms while adding social features to them. We expect its share of the global cloud computing market, which is expected to be worth nearly $400 billion by 2018, to increase throughout the forecast period.
Salesforce.com Needs to Control Operating Expenses
While the revenue growth may paint a rosy picture, Salesforce.com’s operating expenses continue to grow even faster. Its operating expenses as a percentage of revenue are hovering at around 80%, which is much higher than last year. Its sales and marketing expenses, which were nearly 52% of its revenues this quarter, are a huge drain on its earnings. We expect it to reduce its SG&A expenses as a percentage of its gross profit going forward.
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