Salesforce Boosts Revenue on New Products, Global Expansion

(Bloomberg) -- Salesforce.com Inc. gave a revenue forecast that topped analysts’ estimates, buoyed by growth in its cloud-based business products.

The San Francisco-based company raised its 2019 fiscal year sales guidance to as much as $12.7 billion. Analysts on average estimated $12.5 billion, according to data compiled by Bloomberg. Still, the rising costs of Salesforce’s global expansion tempered the reaction of investors. Shares rose about 1.5 percent in extended trading.

Chief Executive Officer Marc Benioff has set a goal of increasing annual revenue to at least $20 billion by 2021. The company, the market leader in cloud-based software to manage client relationships, is looking overseas to help reach the milestone, expanding operations to Canada, the U.K. and Japan -- a goal that has proven expensive. Salesforce has also added products for marketing and to help customers build tailor-made applications as it competes against larger rivals such as Oracle Corp. and Microsoft Corp.

Revenue climbed 24 percent to $2.85 billion in the fiscal fourth quarter. Analysts projected $2.81 billion for the period. Profit, after certain costs, was 35 cents a share compared with analysts’ estimates of 34 cents.

Total operating expenses climbed 20 percent in the period ended Jan. 31. Marketing and sales costs rose 25 percent to $1.36 billion as Salesforce chased new business in large European and Asian markets.

“We saw an acceleration in our new business, with higher selling costs” as a result of international expansion, higher commissions and more hiring, Chief Financial Officer Mark Hawkins said during a conference call.

Revenue gained 48 percent to $535.8 million in Europe in the quarter, making it the company’s fastest-growing region. Almost one-fifth of Salesforce’s revenue now comes from Europe. Sales increased 27 percent in the Asia-Pacific region.

“The prospects are very strong for expansion in Europe and Asia,” Chief Operating Officer Keith Block said. “We really focus on a top-nine countries, top 25 cities model. We’re looking at a top 50 city model.”

Investors have been bullish on Salesforce’s growth prospects, though its expansion has slowed in recent years. Shares closed at $116.25 Wednesday in New York, and have increased 43 percent in the past 12 months.

“The company has multiple growth vectors across its various clouds and is just starting to build critical mass outside of the U.S.,” Kirk Materne, an analyst with Evercore ISI, said in a research note before the results were released.

The company has been aided by a growing number of deals with larger companies, Block said. Salesforce closed 43 percent more $1 million-plus deals in the last quarter than a year earlier, he said.

Revenue from the system that allows companies to build custom applications gained 37 percent -- the biggest jump of any unit -- to $536.3 million. The marketing and e-commerce business, which rivals Adobe Systems Inc.’s Marketing Cloud, increased 33 percent to $397.6 million. Sales of the company’s flagship tool for managing customer relationships rose 16 percent to $931.8 million.

Billings, or deferred revenue, in the fourth quarter reached $7.09 billion, a 28 percent jump. The company has stopped releasing future billings projections. 

The company has been facing stiffer competition from Oracle, which has been generating more revenue each year from its cloud-based products. Only 35 percent of Oracle’s cloud-application clients are existing customers making the switch from software sold under the traditional licensing system -- suggesting its products have resonated outside of its base of large corporate customers.

Salesforce dominates the market for customer-relationship software. The company had 18 percent of the market in 2016, the last year for which full data is available, according to industry research firm IDC. Oracle was No. 2 with 9.4 percent, and SAP SE had 7.2 percent.

To contact the reporter on this story: Nico Grant in New York at ngrant20@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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