Buddy Media Is Likely To Weigh On Salesforce Q3 Results

Salesforce.com (NYSE:CRM) is set to announce its Q3 results on November 20. In the previous quarter, it reported revenues of $732 million, a 35% increase y-o-y. It reported a net loss of $9.8 million more than double the same quarter last year. Salesforce has been pushing its social media strategy by acquiring companies such as Buddy Media, and this has enabled its customers to interact and engage with clients in meaningful ways. With the Sales Cloud, companies can gain deeper insights into customer behavior which can translate into more sales. With strong analytics provided by Radian6, Salesforce has managed to integrate customers views and feedback into the sales process. Salesforce competes with SAP (NYSE:SAP), Oracle (NASDAQ:ORCL) and  Microsoft (NASDAQ:MSFT) in the ERP segment. We expect Chatter to drive sales and its focus on social media marketing and analytics to yield results in the coming quarters.

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Q3 And Full Year Guidance

After the strong revenue growth in Q2, the company raised its full year revenue outlook to $3.025 billion to $3.035 billion, a 33% to 34% y-o-y growth. This included approximately $25 million from Buddy Media. It also guided for a full year non-GAAP EPS in the range of $1.48 to $1.51. For Q3, revenue is expected to be in the range of $773 million to $777 million, a 32% to 33% y-o-y growth and Q3 non-GAAP EPS in the range of $0.31 to $0.32.

Buddy Media Acquisition Weighs On Salesforce

Salesforce takes some of its product inspiration from Facebook and is pushing clients to adopt a model it calls ‘the Social Enterprise’ where decision support tools have a social aspect that is enabled by Chatter. There are about 150,000 Chatter networks currently supporting clients. Though Chatter itself is offered as a free add-on, it is definitely driving sales for the other products and services used by clients such as Burberry Group Plc and Kimberly-Clark (NYSE:KMB). ^[1] To improve its analytics offerings, Salesforce has entered into an agreement with Twitter to access its daily tweet feed. Twitter’s public tweet data registers more than 400 million tweets a day and Radian6 will allow its clients to access these tweets to monitor the effectiveness of their social media campaigns.

Salesforce has also beefed up its social media offerings by acquiring Buddy Media, a social enterprise software that enables clients to listen, engage, gain insight, publish, advertise and measure social marketing programs. In a recently filed 8-K, the company revealed that Buddy Media is losing money and in the six months ended June 30, 2012, it reported a cumulative net loss of $20.5 million. This is likely to weigh on Salesforce.com’s earnings in the short term, and we will keep our eye on how its acquisitions are faring.

We currently have a $132 Trefis price estimate for Salesforce.com, which is about 15% lower than current market price.

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1. Chatter may boost Salesforce.com products: Barron’s, Chicago Tribune [↩]