Salesforce: Cloud is strong, Chatter is growing and guidance is up

Salesforce CEO Marc Benioff, always a colorful character, apparently didn't get the memos from Wall Street about Chatter getting off to a slow start or a rough economic environment on the horizon.  No, to hear Benioff tell the story, everything is just hunky dory out there on the salesforce cloud.

Chatter was the one of the big talking points during the Salesforce analysts' conference call yesterday, with Benioff taking the reins right out of the gate to squash any concerns that Wall Street might be having about it. In a preview of Salesforce earnings earlier this week, Larry Dignan highlighted some concerns about Chatter among Wall Street analysts. But here's Benioff's take as he presented it during yesterday's conference call:

Customer response to Salesforce Chatter has been nothing short of amazing. Within a week of the release, more than 10,000 customers had turned on Salesforce Chatter. Today, less than two months later that number has now grown to nearly 20,000 customers or roughly one quarter of our total customer base. We believe this is the most successful new software released ever. Not only does Chatter make our Sales and Service Cloud apps better, but when our customers talk about it, they are using words like amazing, exciting, fun, revolutionary, not words typically used to describe enterprise software and that’s why we believe Salesforce Chatter is the next killer app from Salesforce.com.

And it shows in the company's quarterly results, which blew away Wall Street's expectations and sent shares rising in yesterday's after-hours trading and has them soaring today, up more than 13 percent in regular trading. (Statement)

Revenue for the second quarter was up 25 percent from a year ago, coming in at $394 million, and the company said the revenue growth rate climbed at its fastest rate in six quarters. The company reported earnings of 29 cents, well above the company's projected earnings of 26-27 cents, which included a 3-cent hit for the acquisition of Jigsaw.

Wall Street had been expecting earnings of 27 cents on revenue of $384.7 million.

Analysts on the call gave Benioff an open opportunity to sell the business model of cloud computing even further, courtesy of a question that centered around the "unusual uncertainty" around economic conditions that Cisco CEO John Chambers spoke of during his company's earnings call this month.

At that time, Chambers stopped short of making a call on a double-dip recession but noted that, as it relates to the mixed economic signals, he was "having more trouble reading this than ever before."

In response, Benioff - who paused to note that he loves John Chambers and considers him to be one of the greatest CEOs in the industry - essentially said that the Salesforce model hurts the model of companies like Cisco, which is all about "routers and hubs and switches and phones and set top boxes and telepresence devices..." Cisco, he said, is a company that's all about CapEx. On the call, he said:

You have to kind of ask yourself, if Salesforce.com did not exist for the 82,000 customers that we have and the couple of 100,000 apps that they are running in on our servers, how many servers would they need? You can quickly determine that we are operating at a level of efficiency that’s probably a few percentage points of what they would have had to buy. That’s why, I think, cloud computing is so exciting to customers because certainly for our customers it’s a CapEx free environment, they are not buying hardware, they are not buying the kind of traditional capital expenditures necessary and taking on the risk to deliver automation into their companies.

How bullish is Benioff? Well, the company has raised its fiscal 2011 guidance,  with revenue now projected to be between $1.595 billion to $1.6 billion and non-GAAP eps to be between $1.15 and $1.17. For third quarter, revenue is expected to be between $408 million to $410 million and eps to be 30 cents to 31 cents.

The company also noted that the guidance implies more profit in Q3 and less in Q4 - but there's an explanation for that. The company is planning on really ramping up the Dreamforce conference in December in San Francisco, making it its "most amazing event ever."

Among the highlights for this year's show: a keynote speech by President Bill Clinton and entertainment by Stevie Wonder. The expected net cost of the show alone will be roughly 5 cents of the earnings per share in the fourth quarter.

Finally, the company also notes that it is stepping up its hiring, mostly in key sales and engineering positions, and that it is proceeding with the buildout of three new data centers - two in the U.S. and one in Tokyo. And, in September and October, the company will host Cloudforce events in London, Denver, Toronto, Tokyp, Rotterdam and Munich.