Salesforce Q3 Earnings: Another Quarter Of Growth, $10 Billion Revenues In Sight

Salesforce (NYSE:CRM) reported another quarter of stellar growth in which the company beat market expectations for revenue and earnings per share (EPS). Additionally, the company released strong guidance for the fourth quarter and the full fiscal year, resulting in the stock rising 5% in after-hours trading. The company’s revenue grew by 25.3% year-on-year (y-o-y) to $2.14 billion for the quarter, beating both analysts’ estimates of $2.13 billion and its guidance of $2.11 billion to $2.12 billion. The rise in revenue was primarily driven by a surge in subscriptions for Marketing Cloud and Service Cloud. Despite the surge in revenues, the company’s operating profit declined sharply to $3 million, primarily due to higher cost of revenues, higher R&D and General & Administrative expenses. On an adjusted basis, the company’s operating profit rose 20% over the prior year quarter to $272 million. The net loss for the quarter was $37.3 million, significantly higher than the $25.2 million reported in the same period last year. On an adjusted basis, the company’s earnings per share increased from $0.21 in Q3 FY’16 to $0.24.

The Americas region – which contributed 73% of total revenues – saw revenues increase 27% over the prior year quarter to $1.6 billion. The company consolidated its presence in the Asia-Pacific region, where its revenues increased 38% over the prior year quarter to $209 million. The company closed deals with PNC Financial Services, Citigroup, GNC, KONE and Telecom Argentina to name a few. The company’s Demandware acquisition also contributed $49 million to its top line.

Despite the surge in revenues, Salesforce hasn’t been able to improve its margins, which remain a weak point for the company. In the third quarter, the company’s non-GAAP operating margin declined 50 basis points to 12.7%. In the long run, the company is targeting a non-GAAP operating margin in the mid-30s. ^[1]

Future Outlook Positive

Buoyed by the results in the third quarter, the company released guidance figures for the fourth quarter and raised its revenue and EPS guidance for fiscal 2017. In the fourth quarter, the company expects to generate revenues in the range of $2.267 – $2.277 billion and non-GAAP EPS in the range of $0.24 to $0.25. For the full year, the company raised its revenue guidance from $8.275 – $8.325 billion to $8.365 – $8.375 billion, which would represent year-on-year growth of 25%. The company expects non-GAAP EPS of $0.97 to $0.98, against earlier guidance of $0.93 to $0.95. Additionally, the company expects to achieve more than $10 billion in revenues, its long term target, in fiscal 2018.

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More Trefis Research

1. Salesforce Third Quarter Transcripts Call, Seeking Alpha, November 18 2015 [↩]