Following Salesforce’s Earnings Beat, International Expansion And Einstein Adoption In Focus

by Trefis Team
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Salesforce (NYSE:CRM) performed impressively in Q4 fiscal 2017, with year-over-year revenue growth of nearly 27%. Subscription fees and support revenues were primary contributor, growing over 25% driven by the increased adoption of enterprise cloud computing solutions. Salesforce is betting big on its AI CRM platform, Einstein, and we expect it to boost adoption of the company’s cloud solutions. However, the company’s stock price fell due to weak Q1 guidance, attributed largely to seasonality and a difficult year-on-year comparison.

What Went Well?

The company saw strong revenue growth in its product categories. Sales Cloud – the company’s flagship product – grew 13% over the prior year and continued to be the largest contributor to the Subscription and Support segment. Service Cloud and Marketing Cloud saw revenue increases of around 27% and 42%, respectively. Geographically, Salesforce continued to perform well in the Americas region, which contributed 74% of total revenues and grew 27% year-on-year $6.23 billion for fiscal 2017. Asia-Pacific – where the public cloud market is expected to grow at 12% and reach $11.5 billion by 2018, per Gartner – witnessed the most growth for the company, with revenues from the region increasing 34% y-o-y to $793 million. The increased focus on the Asian market is likely to benefit the company in the long term.

Key Concern

Profitability remains a key area of focus for Salesforce, as its GAAP EPS remained negative at $(0.07) in the fourth quarter, though non-GAAP EPS of $0.28 was up 47% from the prior year. Operating expenses grew at over 25% as the company continued to spend extensively on sales and R&D in order to effectively compete with rivals such as SAP and Microsoft. This trend is not expected to change in the near term, and Salesforce is likely to remain acquisitive going forward.

Looking Ahead

Going forward, the company expects its growth momentum to continue into the coming year, as the company expects to generate revenues of over $10.1 billion for the full year. We expect an increased adoption rate internationally, as the demand for cloud solutions and integrated end-to-end CRM solutions with AI support grows globally.

See our complete analysis for Salesforce

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