(CRM) Salesforce.com’s Revenue Grows – Earnings Per Share Exceeds Expectations

February 28th, 2010

Salesforce.com (CRM) reported fourth-quarter EPS of 16 cents, which exceeded the Zacks Consensus Estimate of 15 cents.

Revenue

Revenue for the fourth quarter was $354.0 million, an increase of 22.2% from $289.6 million in the year-ago quarter. This exceeded the company’s guidance range of $340.0 million to $342.0 million. The increase in revenue may be attributed to better performances from the Sales Cloud, Service Cloud and Custom Cloud segments, driven by higher volumes.

Subscription & Support revenue of $327.4 million increased 23.0% from the year-ago quarter. Professional Services & Other revenue of $26.7 million increased 14.0% from the year-ago quarter. Geographically, the Americas contributed 69.0% of fourth quarter 2010 revenue, growing 16.7% year over year. Europe contributed 18.0%, growing 33.1% year over year. The Asia-Pacific contributed 13.0%, growing 42.4% year-over-year.

Customers

Net paying customers increased 4,600 during the quarter, bringing the total to 72,500. This was an increase of 31.0% from the year-ago quarter. In addition, the company added 17,100 net new customers during fiscal year 2010.

Operating Results

Gross margin was 80.7% in the fourth quarter as compared to 79.7% in the year-ago quarter. This minimal increase in gross margin is attributable to a mix shift between revenue lines, with the high-margin subscription revenue comprising more of the company’s total revenue than the low-margin professional services business. The operating margin was 7.2% in the quarter, versus 5.6% in the year-ago quarter.

On a GAAP basis, fully diluted EPS for the third quarter was $0.16 compared to $0.11 in the year-ago quarter. Earnings per share exceeded the company’s guidance of $0.14 to $0.15. Earnings per share on a GAAP basis include approximately $25.9 million in stock-based compensation expense and approximately $2.9 million in amortization of purchased intangibles related to previously-announced acquisitions. On an adjusted basis, EPS is $0.37 per share.

Balance Sheet & Cash Flow

Salesforce.com generated $92.0 million in cash from operating activities in the fourth quarter of 2010, versus $36.0 million in the previous quarter. The company ended the quarter with $1.7 billion in cash and cash equivalents and marketable securities (both current and non-current), versus $1.0 billion in the previous quarter. Salesforce.com has no long-term debt. Deferred revenue for the quarter was $704.0 million, up from $533.5 million in the previous quarter.

Guidance

Management has provided guidance for the first quarter. Revenue is projected in the range of $365.0 million to $367.0 million, with the GAAP-based EPS in the range of $0.12 to $0.13. The company has provided its full year 2011 guidance and expects revenue to increase approximately 16.0% to 17.0%. The company now expects GAAP-based EPS to be in the range of approximately $0.58 to $0.60, while non-GAAP EPS is expected between $1.25 and $1.27.

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