Salesforce.com Inc. (CRM:US) forecast fiscal third-quarter profit that missed analysts’ estimates as the company spends on sales and marketing to try and win business from companies shifting to software delivered over the Web.
Earnings excluding certain items will be 31 cents to 32 cents a share for the period ending in October, San Francisco- based Salesforce said in a statement yesterday, missing analysts’ average 34-cent estimate compiled by Bloomberg. Sales will be $773 million to $777 million, the company said, exceeding the average (CRM:US) $772 million estimate.
Chief Executive Officer Marc Benioff is accelerating spending to capture companies shifting from programs that run on their own computers to software delivered over the Web. That’s led to an increase to $4.1 billion in the company’s backlog of signed contracts it hasn’t yet invoiced customers for, according to Brent Thill, an analyst at UBS AG.
“It takes money to make money,” said Thill, who is based in San Francisco and rates the stock as a buy. “Don’t forget, this was a $120 stock at the beginning of August. If you don’t have a blowout quarter, you’re going to give a little bit up.”
The shares rose 1.2 percent to $148.54 at the close in New York. Salesforce is up 46 percent this year.
Sales and marketing expenses rose 34 percent to $380.2 million in the second quarter, which ended in July.
Billings, a measure of the amount Salesforce invoiced customers during the quarter, increased 30 percent to $734.1 million, compared with the $733.3 million average of nine estimates compiled by Bloomberg.
Citigroup Inc. analyst Walter Pritchard said in a note to clients that most analysts were looking for better billings growth, given the recent run-up in Salesforce shares.
Sales for the second quarter rose 34 percent to $731.6 million, compared with analysts’ average estimate of $728.2 million. Earnings excluding some items were 42 cents a share, compared with the 39-cent estimate of analysts.
Salesforce, the largest provider of online customers management software, posted a net loss (CRM:US) of $9.8 million in accordance with generally accepted accounting principles, compared with analysts’ estimate of a $14.9 million loss.
For the full fiscal year that ends in January, the company said it expects sales of $3.03 billion to $3.04 billion and earnings excluding some items of $1.48 to $1.51 a share. In June, Salesforce had forecast (CRM:US) $1.45 to $1.49.
“We’re most excited about the second half of the year,” said Mark Murphy, an analyst at Piper Jaffray in San Francisco, who has an overweight rating on the shares. The company’s shift to longer-term annual payment cycles has created a “headwind” on billings, he said.
Salesforce, the largest seller of online customer management software, may see its enterprise value -- which includes the value of its stock plus debt -- fall to 6.4 times sales in the current fiscal year, versus its yearly average of 7.7 since 2005, data compiled by Bloomberg show.
Benioff has been expanding beyond the company’s core software for managing sales leads and customer service by making acquisitions (CRM:US) to add programs for human resources and marketing through Facebook Inc. (FB:US) and Twitter Inc. Salesforce’s $689 million acquisition of Buddy Media, which lets businesses create Facebook campaigns, closed Aug. 13.
At Salesforce’s Dreamforce conference in San Francisco Sept. 18 to 21, Benioff plans to announce a new HR tool called Work.com that will share functions with human resources software from Workday Inc., Benioff said during a conference call with analysts.
The company is also expanding sales of its software aimed at chief marketing officers, and Buddy Media software now handles about 10 percent of the ad spending on Facebook’s website, he said.
Salesforce faces a stiff challenge, though, from bigger enterprise software rivals that have moved onto its turf with online offerings. Oracle Corp. (ORCL:US) and SAP AG (SAP) are selling more sales and human resources software over the Web, emulating Salesforce’s business model.
Oracle says it’s already booked $1 billion from cloud computing, as well as online human resources and customer support companies it acquired in the past year. SAP this year bought online HR software maker SuccessFactors.
“Oracle made the decision that they need to become a bigger player in the cloud space,” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co. “They are taking their traditional playbook and applying it,” buying smaller companies that can add sales and technical expertise, he said.
Oracle is augmenting its traditional business applications that run on companies’ own computers with products it can deliver through a cloud computing model like Salesforce does, said Moerdler, who is based in New York and has an underperform rating on Salesforce.
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