Salesforce forecasts profit below expectations

Salesforce sign is seen during the company's annual Dreamforce event, in San Francisco
A Salesforce sign is seen during the company’s annual Dreamforce event, in San Francisco, California November 18, 2013. REUTERS/Robert Galbraith

November 21, 2017

By Arjun Panchadar and Salvador Rodriguez

(Reuters) – Salesforce.com Inc <CRM.N> forecast fourth-quarter profit slightly below market expectations, hurting its shares even as profits and revenues rose on the back of strong demand for its cloud-based sales and marketing software.

Salesforce said on Tuesday that it expected fourth-quarter adjusted profit of 32 cents to 33 cents per share and revenue of $2.80 billion to $2.81 billion.

Analysts on average were expecting a profit of 34 cents per share on revenue of $2.79 billion for the fourth quarter, according to Thomson Reuters I/B/E/S.

“This is not saying that business is strong,” said Kim Forrest, vice president at Fort Pitt Capital Group. “It could be that the company is just setting the bar low, but investors are taking a dim view of this.”

Demand for Salesforce’s cloud-based services has soared as companies look to take advantage of the lower costs and scalability of shared software storage.

But skeptical analysts said there were a lack of new initiatives on offer.

“Investors are left scratching their heads to see what new products and services will be introduced,” said Adam Sarhan of investment advisory service 50 Park Investments. “At this point, anyone who wants to use Salesforce already uses it, so without new offers, growth will be harder and harder to come by.”

Salesforce’s shares were down 1.75 percent in after hours trading, swapping hands at around $106.90.

Revenue from Sales Cloud, the company’s flagship product, rose 17 percent to $906.5 million in the third quarter.

Deferred revenue, a key metric for subscription-based software businesses, rose 26 percent to $4.39 billion, beating analysts’ average expectations of $4.18 billion, according to financial and data analytics firm FactSet.

That was a faster pace than the same quarter last year, when Salesforce’s deferred revenue grew 23 percent year-on-year.

That illustrated that Salesforce’s business model remained well-positioned, said Daniel Ives at research firm GBH Insights.

Salesforce has boosted spending on research and development as well as marketing and sales in the face of intense competition from companies such as Oracle Corp <ORCL.N> and Microsoft Corp <MSFT.O>.

Initiatives like Salesforce’s Einstein, its artificial intelligence platform, and its 2016 $750 million acquisition of productivity startup Quip “keep putting fuel in the growth engine,” said Ives.

Net income was $51.4 million, or 7 cents per share, in the third quarter ended Oct. 31, compared with a loss of $37.3 million, or 5 cents per share, a year earlier.

On an adjusted basis, the company earned 39 cents per share, beating analysts’ average estimate of 37 cents per share.

Revenue rose to $2.68 billion from $2.14 billion. Analysts were expecting revenue of $2.65 billion.

(Reporting by Arjun Panchadar in Bengaluru; Editing by Anil D’Silva and Rosalba O’Brien)

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