Salesforce.com's fourth quarter is expected to be strong as the company gains share in large enterprises, but the outlook could be tricky considering expectations are already high.
When the company reports results Thursday the big question is whether Salesforce had to stretch to hit its projections and how the first quarter looks considering a seasonal slowdown is the norm.
Analysts expect Salesforce to report fourth quarter non-GAAP earnings of 6 cents a share on revenue of $1.13 billion.
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Most analysts say that Salesforce likely built on momentum from its Dreamforce conference to land big deals in the fourth quarter. However, the more Salesforce depends on large enterprises the longer the sales cycles become.
Channel checks from analysts show a mixed bag, but one takeaway is that Salesforce partners and customers aren't sold on Salesforce1 yet. For instance, Macquarie Capital analyst Brad Zelnick surveyed 27 partners for Salesforce and found that 48 percent of them say that Salesforce1 is a repackaging of existing offering. Thirty seven percent of partners said it's too early to get a read on Salesforce1, but only 15 percent consider the platform truly innovative.
Zelnick's survey for the fourth quarter seem to indicate that Salesforce growth is decelerating, but the company continues to nail down large deals. Zelnick said:
Our offline dialogue with large partners indicates healthy long-term trends and robust large deal activity in F4Q, which may have offset moderating growth experienced further downmarket.
Stifel Nicolaus analyst Tom Roderick in a research note primarily focused on Salesforce's outlook for the first quarter. For the fourth quarter, Roderick noted:
The enterprise is becoming more and more critical by the day for Salesforce’s performance, and we indeed heard of considerable enthusiasm regarding the Enterprise License Agreement (ELA) environment. We believe that sales reps utilized early renewals in many cases to restructure deals with existing customers for “all you can eat” ELAs, with Service Cloud, Platform and now, even Marketing Cloud additions.
Those restructured deals, however, may take away from the first quarter outlook. Salesforce may get a buffer from the acquisition of ExactTarget, which is benefiting from enterprise deals.
In the end, Salesforce's quarter and future will ride on securing large enterprise deals at the expense of rival platforms from the likes of Microsoft, Oracle and SAP. Oppenheimer analyst Brian Schwartz said:
Given its dominance in CRM and differentiated salesforce1 development infrastructure, we believe salesforce.com is in an enviable position to generate larger enterprise deals over the next few years by competing with platforms from Microsoft, Oracle, SAP, IBM.
Here's why the large enterprise is everything to Salesforce: The company's revenue is expected to soar every year. For fiscal 2014, Salesforce is expected to deliver revenue of $4.06 billion. In fiscal 2015, the revenue tally should be $5.21 billion and then swell to $6.43 billion in fiscal 2016 and $8.3 billion in fiscal 2017.