Salesforce.com (CRM +1.13%) shareholders should fell awfully good about what CEO Marc Benioff and team delivered in fiscal 2016's first quarter. Salesforce's results were particularly impressive coming on the heels of what most analysts and investors agree was an outstanding fiscal fourth quarter.
But the first quarter was then, and this is now, so what does Salesforce do for an encore? Actually, it has quite a few objectives on which it intends to deliver. As Salesforce fans know, management's plans are focused on driving top-line growth, even if that comes at the expense of generally accepted accounting principles (including one-time items) earnings per share.
Patience is a virtue
Nearly all of the $100 million-plus jump in Salesforce's total cost of revenue over to the prior year was due to an increase in marketing and sales-related expenses. This isn't surprising considering Salesforce now has nearly 17,000 full-time employees on the books --over 2,500 more than last year.
The development of new products, and the sales and service personnel to deliver those solutions to prospective customers, have added, and will continue to add, to Salesforce's overhead for the foreseeable future. As Benioff was quick to point out in a press release, "Salesforce has surpassed the $6 billion annual revenue run rate faster than any other enterprise software company," and that kind of growth requires continued investment in the business.
SAP, here we come
During most earnings calls, management generally refrains from alluding to specific competitors beyond anything more than a not-so-subtle reference to an industry challenger. Benioff, however, has no such aversion: he made it clear Salesforce is targeting German-based SAP (SAP 1.11%) in both the customer relationship management, or CRM, space, and its newly expanded cloud offerings.
Given SAP's $4 billion in revenue last quarter, thanks in part to yet another round of triple-digit cloud and software sales growth, catching up will be no easy feat -- even with Salesforce's rapid top-line improvement. But that didn't prevent Benioff from noting that Salesforce is talking with more SAP customers than ever, and that he "dreams" of surpassing it.
$10 billion and counting
Salesforce has already achieved $6 billion in annual revenue, and Benioff said the company should hit the $7 billion run rate later this year. Reaching both milestones are impressive, but they are mere stepping stones to Salesforce's ultimate goal of becoming the fastest enterprise software company to hit $10 billion in revenue.
Considering that Salesforce boasts slightly over $3 billion in deferred revenue -- sales that are on the balance sheet but not included in quarterly results -- on top of its current $6 billion plus run rate, Benioff's objective of $10 billion seems more a matter of when, not if.
Analytics is a game changer
One reason Salesforce is growing so impressively is its expanded suite of cloud offerings. Its new analytics cloud is already becoming a significant part of the company's growth plans. Benioff, President Keith Block, and CFO Mark Hawkins were almost giddy during the conference call when discussing analytics cloud and related data services, and it's easy to see why.
Last quarter, Salesforce secured "the most seven-figure deals" ever, in large part thanks to an increase in deals that included multiple solutions. Salesforce has realized that all the data customers collect via its CRM solution is just a small part of what it can offer. Analyzing that information and providing customers with actionable results is where the real value lies, and now Salesforce can do just that.
We know, and we're working on it
Though pooh-poohed by management, Salesforce announced a somewhat disturbing trend in its geographic revenue sources. On the upside, total revenue in the Europe and Asia-Pacific regions grew last quarter, just as it did in the Americas. However, the percentage of total sales derived from abroad declined from 19% to 17% from Europe and from 10% to 9% in the Asia-Pacific.
That said, Salesforce is fully aware of the geographic sales disparity, which is why Benioff and team left for a "world tour" the day following the company's earnings announcement. As Salesforce sees it, the international revenue decline as a percentage of sales isn't a problem, it's an opportunity. Based on Salesforce.com's recent performance, it's right.
