Salesforce Posts Strong Q4 Results, Eyes Analytics Market to Drive Future Growth
Global cloud computing leader Salesforce.com (NYSE: CRM) reported strong fiscal 2015 fourth quarter and full year results on February 25th. (Fiscal years end with January.) It disproved fears of slowing growth and reported a fourth quarter revenue growth rate of 26% year on year, while full year revenue accelerated by an impressive 32% year on year. Salesforce’s near-term revenue outlook also remains robust as its on and off-balance sheet deferred revenue surpassed $9 billion in the fourth quarter. The company seems to defy its scale and closed 550 seven and eight-figure transactions during the year, which is 100 more than the previous year. [1] Having scaled the peaks of the CRM market, Salesforce has now zeroed in on data science and analytics as the next catalyst for explosive growth. Its Wave Analytics platform is expected to be a key growth driver going forward and has already begun making inroads into the cloud analytics market.
Salesforce’s fourth quarter performance was strong enough to achieve consensus estimates, as well as its own guidance, for both revenue and non-GAAP EPS. Its fourth quarter revenues stood at $1.44 billion, while full year revenues were $5.37 billion. Fourth quarter non-GAAP EPS was $0.14, while full year non-GAAP EPS stood at $0.52. The company also achieved non-GAAP operating margin expansion of 175 basis points, exceeding its expectations of 125-150 basis points improvement.
Despite the impressive fourth quarter results, it is clear that Salesforce’s burgeoning scale has caught up with its rampaging revenue growth. This is evident from its fiscal 2016 guidance, as the company expects revenue growth to slow down to 20% to 21% to reach $6.475 billion to $6.520 billion. Fiscal 2016 first quarter revenue is expected to range from $1.485 billion to $1.505 billion, which is a year on year growth rate of 21% – 23%. This indicates that the era of over 30% revenue growth may well be over for Salesforce.
On the bottom line front, Salesforce guides fiscal 2016 first quarter non-GAAP EPS to be in the range of $0.13 to $0.14, while full year non-GAAP EPS is projected to range from $0.67 to $0.69. The company also plans to continue improving its bottom line and expects to achieve another 125-150 basis points expansion in non-GAAP operating margin in fiscal 2016.
We are currently in the process of revising our price estimate of $55 for Salesforce.com to reflect the fiscal 2015 fourth quarter results.
See our complete analysis for Salesforce.com here
International Expansion Pays Off Despite Currency Headwinds
Salesforce had accelerated its international investments in fiscal 2015 to add more distribution capacity and expand its partner ecosystem. [1] It opened a datacenter in the U.K. during the year and two more are expected in Germany and France in fiscal 2016, as part of the expansion into Europe and Asia.
The geographical expansion paid off in fiscal 2015 as revenue growth was led by jointly by the Americas and Europe with 33% year on year acceleration in revenue in each region. Asia-Pacific followed with 21% year on year revenue growth in fiscal 2015. It should be noted that Europe achieved the same revenue acceleration as the Americas despite foreign exchange headwinds from a weakened Euro. Adverse currency movements depressed overall revenue growth by 1 percentage point during the year.
While the Americas still account for over 70% of Salesforce’s total revenues, the strong performance in international regions is an encouraging sign for sustaining future revenue growth.
Margin Improvement & Deferred Revenue Boost Operating Cash Flow to Record Levels
Salesforce’s non-GAAP operating margin expanded by a commendable 175 basis points during the year despite adverse impact of foreign currency movements. Its GAAP operating loss also narrowed to -3%, from -7% in fiscal 2014. The margin expansion is attributed to lower marketing and administrative expenses as a percentage of sales. [2]
Deferred revenue, which is a key indication of Salesforce’s future revenue stream, jumped by 32% year on year to reach $3.3 billion. Deferred revenue refers to subscription moneys that have been received but not yet booked as revenues. Thus, a jump in deferred revenue helps boost present cash flows and future revenues. This is exactly what happened in fiscal 2015, as the 32% acceleration in deferred revenues worked in conjunction with cost savings to lift operating cash flows to record levels. Consequently, operating cash flows during the year touched $1.2 billion, compared to $0.9 billion in fiscal 2014.
Analytics is The Next Growth Frontier
Salesforce CEO Marc Benioff has stated that the company is set to extend its reach from Customer Relationship Management (CRM) to data analytics. [1] Salesforce’s recently released Wave Analytics Cloud leads this charge and has witnessed rapid adoption, according to the company. This suggests customers are embracing the company’s platform-based approach involving analytics. This is evident from the impressive list of Wave Analytics Cloud customers, which include major global corporations like Merck (NYSE: MRK) and Time Warner Cable (NYSE: TWC). The company is has upped its investment into the Wave Analytics Cloud and has increased the number of people working on the product. With these measures, Salesforce aims at becoming a one stops shop for analytics platforms, apps and ecosystems.
Salesforce’s move into analytics is part of an ongoing trend among global software participants. Oracle Corp. (NYSE: ORCL) already has a significant presence in the market with its Business Intelligence Suite, while SAP SE (NYSE: SAP) recently made a big move into cloud analytics with its new SAP S/4HANA platform. According to Gartner, analytics is set to take center stage going forward due to the ballooning volume of structured and unstructured data to be analyzed. Thanks to the rapid shift from on-premises software in favor of cloud-based software-as-a-service, the global cloud analytics market is projected to grow at a CAGR of 26% through 2019. [3] This presents a lucrative opportunity for cloud computing companies like Salesforce as they search for avenues that can sustain revenue growth in excess of 20%.
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- Salesforce 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, February 25, 2015 [↩] [↩] [↩]
- Salesforce Fiscal 2015 Fourth Quarter SEC Filings [↩]
- Global Cloud Analytics Market 2015-2019, TechNavio, February 16, 2015 [↩]