salesforce.com, inc. Earnings: Can the Cloud Pioneer Keep Growing?

On Tuesday, salesforce.com (CRM +2.86%) will release its quarterly report. Investors haven't been quite sure what to make of the cloud-computing pioneer's stock lately: the company has complicated relationships with larger peers in the space, with a strategic partnership with Oracle (ORCL +0.50%) that it began last year and a new relationship with Microsoft (MSFT +1.08%) based on Salesforce's acquisition of ExactTarget. But the biggest question Salesforce faces is whether it can make its net income grow as quickly as its revenue has risen lately.

Customer relationship management seems like a pretty simple concept. Companies want to make sure that they're treating their clients right by keeping track of how much contact they give their customers and what types of products and services those clients are most interested in. But Salesforce was instrumental in pushing CRM platforms into the cloud, and that enabled its users to manage their marketing, sales, and customer-service campaigns from across their networks without the hassle and expense of doing the network-infrastructure legwork themselves. Still, Salesforce has to keep moving forward in a rapidly evolving industry. Let's take an early look at what's been happening with Salesforce.com over the past quarter and what we're likely to see in its report.

Source: salesforce.com.

Stats on Salesforce.com

Source: Yahoo! Finance.

How long can Salesforce.com earnings keep growing?
In recent months, analysts have largely held steady on their views of Salesforce earnings, raising their projections for the next fiscal year by a single penny per share. The stock has given up a considerable amount of ground, though, falling more than 15% since mid-February.

Salesforce's fourth-quarter earnings report raised as many questions as it answered. Revenue climbed 37%, and the company raised its full-year revenue guidance by $100 million to $5.3 billion. Yet a substantial portion of that came from acquisitions, and operating margins fell by six full percentage points from the year-ago quarter. Moreover, Salesforce expects to continue to have trouble with profitability on an unadjusted basis well into the future, and, as a result, shares fell after the report.

Salesforce's business strategy can be hard for investors to understand, as it emphasizes sales and market-share growth over profits. Essentially, Salesforce is trying to stay ahead of Oracle, Microsoft, and other competitors by making sure that it holds onto existing clients and woos new ones into the fold, sacrificing current profitability in the hopes of establishing long-term relationships and deferring profits into future years. Yet with all the hype that cloud computing has gotten, Salesforce will eventually have to start making money, and it's unclear when that switchover will happen.

Moreover, Salesforce is aiming at global domination. The company will soon open more data centers in Europe, opening a London-based center this year and then expanding to Germany and France next year. As Europe emerges from recession, Salesforce's timing could work out well.

Yet of even more importance for Salesforce is its Salesforce1 app platform, which the company hopes to use to bolster its presence in the mobile space. With mobile devices becoming more prevalent, customer-relationship management companies have to make their offerings as accessible and convenient as possible to their clients, and Salesforce hopes to make its marketing and sales platforms the most successful in the market.

In the salesforce.com earnings report, watch to see how the company handles recent doubt throughout the stock market with respect to its share-price growth potential. Salesforce will have to keep proving itself in order to see its stock recover and climb back to its past highs.

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