Even though salesforce.com's (CRM 6.50%) stock traded more than a percent lower after market open on Wednesday, following its third-quarter earnings release on Tuesday afternoon, it would be difficult to argue that the results didn't impress investors. After all, the stock mostly held its sharp run-up recently. Even after a slight pullback in its stock price on Wednesday, shares are still up 8% in the past 30 days and 17% in the past three months.
What was behind Salesforce's results? More rapid revenue and earnings growth, its fourth guidance raise in a row for fiscal year 2018, and more.
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Growth
Salesforce continued to grow rapidly in its third quarter of fiscal year 2018. Revenue was $2.68 billion, up 25% year over year. Non-GAAP EPS was $0.39, up 63% year over year. Both of these figures were ahead of consensus analyst estimates for revenue and non-GAAP EPS of $2.65 billion and $0.37, respectively.
Hitting an annual revenue run-rate of $10 billion in its second quarter of fiscal year 2018, the software-as-a-service (SaaS) company already had its sights set on $20 billion. And with Salesforce's third-quarter results behind it, CEO Marc Benioff said the company is on track to exceed this annual run-rate "faster than any enterprise software company in history."
Salesforce's unbilled deferred revenue, or contracted business that remains unbilled and absent from the balance sheet, was notably $11.5 billion, up 34% year over year. That marked an acceleration in this key metric; unbilled deferred revenue was $10.4 billion, or up 30% year over year, in Salesforce's second quarter.
Bigger guidance... again
With quarterly results coming in higher than expectations, it was no surprise that management raised its outlook for fiscal year 2018. That marked the fourth time in a row that management has raised its guidance for this period, making it hard to deny Salesforce's momentum.
Management said it expected full-year revenue to be between $10.43 billion and $10.44 billion, up 24% from fiscal year 2017's revenue. In Salesforce's second-quarter earnings release, management was guiding for full-year revenue between $10.35 billion and $10.4 billion. Looking back even further, it's evident how much Salesforce's outlook has changed: Management's initial guidance for fiscal year 2018, which was issued in its third quarter of fiscal year 2017, was for full-year revenue between $10.1 billion and $10.15 billion.
Salesforce management also raised its expectations for GAAP and non-GAAP EPS. Management now expects these metrics to be in ranges of $0.12 to $0.13 and $1.32 to $1.33, respectively. This compares to previous guidance for ranges of $0.07 to $0.09 and $1.29 to $1.31, respectively.
Salesforce's new chief product officer
Along with its third-quarter results, Salesforce also said it's naming Bret Taylor as its chief product officer. Alex Dayon, who was serving as the company's chief product officer, is now Salesforce's chief strategy officer.
Taylor has an impressive resume. Salesforce gained him when the company acquired cloud-based word processing app Quip in 2016. Not only was he the co-founder and CEO of Quip, but he served as Facebook's CTO and helped co-create Google Maps. Similarly, Dayon's new position to oversee Salesforce's strategy fits hits impressive nine-year tenure at Salesforce overseeing the growth, expansion, and evolution of the company's product portfolio.
"Taylor will be responsible for driving Salesforce's global product vision, design and development, and go-to-market strategy. Dayon will lead strategic initiatives, working closely with Salesforce's customers on product direction and transformation," Salesforce said in its Nov. 21 press release about the leadership changes. "Both executives will report to Chairman and CEO Marc Benioff."
With another quarter of strong growth behind it, Salesforce remains a stock worth holding for the long haul.
