delivers strong Q2, raises revenue outlook

Salesforce's growth rates continue to impress, but the company's sales and marketing expenses surge. The revenue outlook was raised, but third quarter earnings guidance miss expectations.'s second quarter results were better-than-expected as the company continues to land enterprise deals. Meanwhile, Salesforce upped its sales outlook for the third quarter fiscal year, but the earnings picture was mixed relative to expectations.

The cloud company reported a second quarter net loss of $9.83 million, or 7 cents a share, on revenue of $731.6 million, up 34 percent from a year ago. Non-GAAP earnings were 42 cents a share.

Wall Street was looking for non-GAAP earnings of 39 cents a share on revenue of $728.3 million.

Salesforce also raised its outlook for the third quarter and fiscal 2013. For the third quarter, Salesforce projected non-GAAP earnings of 31 cents a share to 32 cents a share on revenue of $773 million to $777 million. Wall Street was looking for third quarter non-GAAP earnings of 34 cents a share on revenue of $771.3 million. On a GAAP basis, Salesforce said it will lose 26 cents a share to 27 cents a share.

The company noted that it was facing currency headwinds, notably in the European Union. 

Shares of Salesforce got a haircut afterhours. 


For fiscal 2013, Salesforce said that it will deliver non-GAAP earnings of $1.48 a share to $1.51 a share on revenue of $3.02 billion to $3.03 billion. Wall Street expected non-GAAP annual earnings of $1.49 a share on revenue of $3.02 billion. On a GAAP basis, Salesforce said it will lose 75 cents a share to 72 cents a share.


Add it up and Salesforce is signaling it can maintain its heady growth rates. Meanwhile, the company is spending to grow. Marketing and sales expenses in the second quarter were $380.2 million, up from $283 million. You could say Salesforce is living up to its name.

CEO Marc Benioff said that the company's strategy to focus on large companies was working well and the social enterprise is becoming reality. 

On a conference call with analysts, Benioff was his usual perky self. He noted:

  • Service cloud has hit a $500 million annual revenue run rate.
  • Developers have coded more than 300,000 applications on
  • Nestle has rolled out Salesforce to 300,000 employees.
  • Salesforce is near its first 1 billion transaction day.
  • Salesforce has $500 million annual revenue run rates in Europe and Asia.
  • And not too surprisingly, Benioff touted Dreamforce and added it will be the largest enterprise software powwows ever with Richard Branson, Virgin Chairman, GE CEO Jeffrey Immelt and even Tony Robbins. What will Robbins do? He will "run an entire day focused on how to transform yourself into the next generation social enterprise," said Benioff.

By the numbers:

  • In the second quarter, subscription and support revenue was up 35 percent from a year ago. Services revenue was up 20 percent. The bulk of Salesforce's revenue is subscription and support.
  • Deferred revenue in the second quarter was $1.34 billion, up 43 percent from a year ago.
  • Unbilled deferred revenue was $2.8 billion.
  • Salesforce said its second quarter operating cash flow was $136 billion, up 34 percent from a year ago.
  • The company ended the quarter with $1.8 billion in cash and equivalents.
  • Research and development spending was $99 million in the second quarter, up from $74 million a year ago.
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