Salesforce Shows Big Revenue Growth But Ballooning Costs Check Our Enthusiasm

Mar. 05, 2013 3:11 PM ETSalesforce, Inc. (CRM)6 Comments
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3.26K Followers (NYSE:CRM) reported strong Q4 and fiscal 2013 results as revenues passed the $3 billion mark for the year ending January 31, 2013. Quarterly revenue came in at $835 million, up 32% y-o-y, while full year revenue was up 35% at $3.05 billion. Full year operating cash flows was $737 million, an increase of 25%. Growth was mainly driven by its core businesses Sales Cloud and Service Cloud, with new products such as Marketing Cloud also gaining traction with customers.

As the pioneer in cloud-based platforms, maintained its position as the top cloud-based CRM and marketing solutions provider in fiscal 2013. While the company has always reported high revenue growth, costs remain a concern. For the full fiscal year, GAAP net loss per share stood at $1.92 and non-GAAP diluted earnings per share was $1.63. [1]

Below we examine some key results and trends affecting the company.

Outlook For Q1 FY 2014

Based on strong growth of existing products and growing adoption of its new offerings, the company raised its revenue guidance by $20 million. It now expects fiscal 2014 revenues between $3.82 billion and $3.87 billion, up 25% to 27% y-o-y. It also expects full year non-GAAP EPS to range between $1.93 and $1.97. For Q1, the company guided revenues of $882 – $887 million and non-GAAP EPS of $0.40-$0.42.

Rising Costs A Concern

The cost of revenues has been trending higher and grew nearly 40% y-o-y to $683 million. This reduced gross margins slightly from 78.5% to 77.5%. R&D costs have gone up by more than 45% to $430 million as the company has been investing in new business lines. Marketing expenses are up by more nearly 40% annually at $1.6 billion. As the company enters new businesses, we expect this to grow faster than revenues in the short run before trending lower. We will keep an eye on this metric in the future.

Social Media Key Driver For 2014

The key change in the cloud-based software landscape is that more software sales are being driven by marketing and IT spending is no longer restricted to IT departments of a company. This is the main reason for’s entry into the marketing software space. The company expects much of its software expenses coming from marketing departments and the focus of this software division has been shifting from technology departments to the Chief Marketing Officer’s departments. Salesforce has beefed up its social media offerings by acquiring companies such as Radian6 and Buddy Media as it expects marketing spend on social media to become a significant part of companies’ marketing budgets.

Owing to these changes in business performance, we currently have a $131 Trefis price estimate for, which is about 20% lower than current market price.


  1. Salesforce Earnings Transcript,, Feb 28, 2013

Disclosure: No positions

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