Salesforce.com (NYSE: CRM) CEO Marc Benioff started his third-quarter conference call by calling it "our most spectacular quarter ever." In fact, there is no other software firm its size -- about $500 million in annual revenues -- growing as fast. It's certainly a testament to the company's unique approach to selling and delivering business software.
In the third quarter, revenues surged 57% to $130 million. Net income was $339,000, or breakeven on a per-share basis, which compares to a net profit of $13.1 million, or $0.11 per share, in the same period a year ago. However, operating cash flows were $31 million in the third quarter, which was up 25% over the past year. In all, the company has $371 million in the bank.
Essentially, Salesforce.com sells software that helps companies manage their customer interactions, which is known as customer relationship management, or CRM. But the company delivers its software "on demand," which means it can be accessed through a Web browser. Benefits include rapid deployment, because there is no need to build out infrastructure (such as servers); automatic upgrades (since they are handled from Salesforce.com's own servers); and familiarity (since people are accustomed to using Web-based applications).
Interestingly enough, a couple years ago, there was much skepticism about the on-demand approach. However, when I interviewed Chris Cabrera, the CEO of on-demand company Xactly Corporation (which is also a partner of Salesforce.com), he had this to say: "Even the one in 10 prospects that were raising concerns just a year ago have gone away. It is the absolute rare exception that a prospect pushes back on the on-demand model."
Salesforce.com also has a unique business model; that is, the company charges for its software on a subscription basis by way of a quarterly payment based on the number of users. The subscriber base is growing at a rapid rate, with 61,000 new members in the third quarter. The total is now 556,000.
Subscriptions create a recurring revenue stream, which should be relatively stable so long as there is minimal churn. This is in contrast to the traditional software business model, in which a company needs to snag large software license contracts every quarter.
In terms of guidance, management forecasts earnings ranging from breakeven to a $0.02 loss in the fourth quarter, with revenues of $140 million to $142 million. The stock has almost doubled off its recent lows not for short-term forecasts, but for long-term growth expectations. For next year, the company expects revenues of $700 million to $710 million.
Despite all the good news, the big concern is: Can Salesforce.com continue to grow over the long term? Well, keep in mind that the company is much more than just a CRM player. It's building a highly scalable on-demand platform, with major deployments from companies like Cisco (Nasdaq: CSCO).
What's more, it has built new tools -- such as AppExchange and Apex -- that allow customers to build their own applications. After all, it's often the case that "innovation happens elsewhere."
In other words, as customers build new applications, those programs should attract more subscribers. It's kind of like the "network effect," in which more usage increases the value of the network. One parallel is Microsoft's (Nasdaq: MSFT) Windows, which became a platform that propelled the desktop revolution.
Thus, as long as Salesforce.com can continue to improve its platform and encourage innovation from its customers and partners, the company should continue to be a fast-paced grower.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is also ranked 31 out of 13,207 in Motley Fool CAPS.
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