Salesforce.com's Q2 report finds ongoing shift to marketing solutions

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Will Salesforce.com's new corporate headquarters be underwater someday?
Will Salesforce.com's new corporate headquarters be underwater someday?

Enterprise software developer Salesforce.com reported its second-quarter earnings and third-quarter estimates yesterday, reporting $732 million in revenue, slightly edging its earlier guidance, as well as analysts' average projections. The result reflects a year-over-year increase of 34%.

With revenue projections for the third quarter calling for another 33% year-over-year boost, analysts and the company concur that Salesforce.com will collect more than $3 billion in revenue for fiscal year 2013. Shares of Salesforce.com (ticker symbol CRM) were volatile over the past three months, swinging more than 15% throughout the quarter, but trading closed up more than 1% today.

What negative news there was for Salesforce.com mostly came from foreign exchange troubles. The recent rapid decline in the value of the euro cost the company at least $5 million in dollar revenue for the quarter, a rate the company is building into its projections for the remainder of the fiscal year.

ROTH Capital Partners senior research analyst Nathan Schneiderman says that the company's consistent record of 30-plus percent revenue growth each quarter, year-over-year, may have made the latest results seem humdrum. "It wasn't a slam dunk, unbelievable quarter relative to expectations, but it was solid in the context of so many other companies screwing up this quarter, and the company's growth prospects are still pretty incredible," he says. "Show me another $3 billion revenue company growing at 34% total revenue [annually]—that's a small list."

More important than the minute details of Salesforce.com's earnings results compared to analyst estimates is the firm's ongoing reinvention around social marketing practices. The majority of Salesforce.com's revenue still comes from its namesake, sales force automation (SFA) product, but nearly half of new sales this quarter came from other product lines. "Clearly, they are more penetrated in the [SFA] market, and these newer businesses are growing faster, but they should grow faster because they are newer initiatives with a smaller base," Schneiderman says. "I think they still have room to grow."

On the earnings call, Salesforce.com CEO Marc Benioff made the bold prediction that the company expects CMOs to drive more technology spending than CIOs in the years to come. Salesforce.com's recent acquisitions support that assertion, particularly the high-profile acquisitions of social media analyst Radian6 and social commerce leader Buddy Media. Through the Buddy Media business, the company claims that more than 10 % of all Facebook ad spending flows through its platform.

Salesforce.com also announced a shift away from its conventional annual seat subscription model to a "social enterprise license agreement," which will bundle multiple services into an enterprise-wide flat-fee structure. This format is expected to appeal to larger clients looking to refresh their enterprise technology stack. "[W]e believe that the industry stands at the beginning of a multiyear e-commerce, marketing, sales, service, and call center replacement cycle," wrote Credit Suisse research analyst Philip Winslow in a Salesforce.com report issued today. "We expect these drivers to continue to produce strong demand for Salesforce.com's solutions and drive continued upside to estimates."

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