Salesforce.com (NYSE:CRM) reported its fiscal Q2 2015 results on August 21. (Fiscal years end with January.) Revenues topped the consensus estimate of $1,288 million, growing 38% to reach $1,319 million. The company also exceed analyst estimates in its bottom line, with a non-GAAP earnings per share figure of 13 cents compared to the consensus estimate of 12 cents.
Interestingly, the company provided a breakdown of sales by product offering for the quarter. However, prior period information was not reported for comparative purposes. Revenues from its core offering, the Sales Cloud, stood at $610 million for the quarter. Revenues from subscriptions to its Service Cloud and Marketing Cloud stood at about $319 million and $122 million, respectively, during Q2'15. The Salesforce1 platform, which was launched before the start of Salesforce's annual Dreamforce conference in November 2013, generated revenues of approximately $182 million during Q2'15.
Geographically, developed markets in Europe and the Americas registered constant currency growth rates of approximately 36% and 39%, respectively, in Q2'15, compared to 34% each from a year prior period. The acceleration in top line growth in these regions was facilitated by an increase in IT spending on the back of a recovering global economy. Sales from the Asia-Pacific region, which contribute about 10% of revenues, grew slower than these developed markets during the quarter, at 27% year on year. However, the Asia-Pacific region's growth rate during Q2'15 was higher than its growth rate from a similar period a year ago.
In this earnings article, we take a look at the recently reported Q2'15 results from Salesforce. We have a $47 price estimate for Salesforce.com which is under revision to incorporate the latest quarterly earnings.
Growth in SaaS CRM Deployments Should Benefit Salesforce
The global market for Customer Relationship Management software has been exploding each year, with intensifying competition among vendors and aggressive investments from customers. Technology market research provider Gartner expects the global CRM market to expand to approximately $36.5 billion by 2017, from about $20.5 billion last year, representing a compounded annualized growth rate (OTCPK:CAGR) of about 15.5%. 
More importantly, a recent Gartner update on the global CRM market highlights the fact that cloud deployments of CRM suites are outpacing standard on-premise deployments. The Software-as-a-Service (SaaS) model of CRM deployment, pioneered by Salesforce, is expected to register a higher CAGR of approximately 23% than the broader CRM market through 2017.  The higher growth rate for SaaS-based CRM software has resulted in greater share of on-demand deployments. Gartner estimates more than 50% of CRM sales to be SaaS-based by 2015.  On a longer term, Gartner estimates as much as 85% of CRM suites to be deployment on-demand by 2025. 
Salesforce should benefit from both the explosive growth in the CRM market and the shift toward on-demand deployments from companies. The company has followed market trends carefully and has diversified itself from being a sales automation software provider into a successful sales analytics provider, presenting targeted customer-centric solutions to its users that increase their marketing return on investment (NYSE:ROI). Successful deliverability of high ROI on marketing investments for its customers has resulted in a rapid expansion in its customer base over the years. And we expect increasing stickiness from older customers and expanding renewal rates from newer customers should help sustain revenue growth for the company.
In terms of deferred revenue, Salesforce's deferred revenue base expanded by 32% on a year-on-year basis to reach $2.35 billion. For Q3 2015, Salesforce estimates suggest deferred revenues will grow about 30% year on year.  Moreover, the company's unbilled deferred revenues increased to $5 billion by July 2014, underlining Salesforce's strong business pipeline for the future.
Salesforce1 Could Become a Potential Multi-Billion Dollar Product for Salesforce
Salesforce launched the "Salesforce1" platform before the start of its annual Dreamforce conference in November 2013. This new offering is engineered to connect various apps and a multitude of devices across a single platform and greatly increase mobility for sales representatives. Built on an API first philosophy, Sales Cloud on Salesforce1 features additional API tools for developers to create and deploy enterprise-level applications across mobile devices.  The platform has generated sales of about $346 million in H1 2015, which represents a fiscal year revenue run rate of about $700 million.
We believe the platform could see tremendous growth prospects and become a billion dollar sales generator for Salesforce in the very near future. With about 1.7 million developers on the platform and 10 times more APIs than before on its Force.com development platform, we believe Salesforce is well-positioned for the growth in mobile CRM applications in the future, especially from the retailing industry.  In its recent Q2'15 earnings call, Salesforce reported having signed a deal with Safeway to build applications that increase store productivity for the retailer.  We expect the platform to build scale across industry verticals in the near future through Salesforce's diverse customer base.
Disclosure: No positions.