Salesforce.com (CRM 128.53, +1.65, +1.30%) is trading higher today after reporting strong
Q1 (Apr) results/guidance last night. The company offers cloud-based enterprise
software with a focus on customer relationship management (hence the ticker
CRM). Salesforce is number one today in CRM, which is the fastest growing
segment of the enterprise software industry.
Its overall goal is to help its customers connect better with their customers in new ways. It platform includes sales force automation, customer service and support, marketing automation, digital commerce, community management, analytics, application development, Internet of Things (IoT) integration, and collaborative productivity tools. Here are some of its cloud service offerings:
- Sales Cloud: This was CRM's first offering and continues to be the largest contributor to revenue. It enables companies to store data, monitor leads, forecast opportunities, gain insights etc. Customers use Sales Cloud to grow their sales pipelines, improve sales productivity, simplify complex business processes and close more deals.
- Service Cloud: CRM's second largest contributor to revenue enables companies to deliver smarter, faster and more personalized customer service and support. Customers use the Service Cloud to connect their service agents with customers anytime and anywhere, on popular devices and across multiple channels — phone, email, chat, live video, SMS, self-service web portals, social networks etc. In addition, Service Cloud also offers a field service platform that enables companies to connect agents, dispatchers and mobile employees through one centralized platform, through which they can track and manage jobs in real-time.
- Marketing Cloud: This enables companies to optimize one-to-one customer interactions across email, mobile, social, web, and connected products. With the Marketing Cloud, customer data can also be integrated with the Sales Cloud and Service Cloud in the form of leads, contacts, and customer service cases to give companies a complete view of their customers.
Of note, on May 2 CRM closed a major acquisition when it bought
MuleSoft (MULE) for $6.5 bln in cash and stock. This
company provides a platform that makes it easier for IT departments to build
software applications using what are known as APIs (Application Program
Interface). An API is a set of routines, protocols, and tools for building
software applications. MuleSoft is the developer of the Anypoint Platform.
Once an API is created, it can be discovered via search and used over and over by future IT department personnel so that when they are building a software application, they can plug-in that API that was already created by another developer instead of starting from scratch.
So why did CRM acquire MULE? CRM described how digital transformation is now a top priority for CEOs in every industry. These CEOs tell CRM that unlocking massive amounts of data is critical to their digital transformations and data locked in their legacy systems is holding them back. This deal will enable customers to access data across all of their systems, from legacy software to cloud applications to mobile apps and IoT and the list goes on.
Turning to the Q1 (Apr) results, non-GAAP EPS came in at $0.52 (backing out the $0.22 benefit for mark-to-market accounting), which was above prior guidance of $0.46-0.47. Revenue rose 25.4% year/year to $3.01 bln, which was above prior guidance of $2.935-2.945 bln. Subscription and support revenue grew 27% year/year to $2.81 bln while Professional services revenue grew 4% to $196 mln. The guidance was quite strong as well as CRM expects Q2 (Jul) non-GAAP EPS of $0.46-0.47 and revenue of $3.22-3.23 bln. Of note, the MULE acquisition closed on May 2 so it was not part of the AprQ results, but it is included in the JulQ guidance.
On the call, CRM talked about how its momentum from Q4 (Jan) carried over into Q1 (Apr) as the company signed several significant deals in the quarter, including the largest transaction in the company's history. Its Sales Cloud product grew at 16%, 33% faster than the market, a clear indicator of strength in its core business. Service Cloud grew 29% with Field Service Lightning being a key part of that growth. In fact, one of the world's largest food and beverage companies selected Field Service Lightning for retail execution to boost employee productivity. In Q1 (Apr), CRM strengthened its relationship with Citi who is rolling out Marketing Cloud across their business in Asia.
CRM is also seeing incredible momentum with Commerce Cloud as increasing numbers of customers select this platform as part of their broader engagement with Salesforce. CRM had notable expansions with another leading athletic apparel maker who is enhancing and expanding their direct-to-consumer business. CRM also deepened its relationship with one of the largest luxury groups in the world, which is transforming their retail experience with Commerce Cloud.
In sum, this was another strong earnings report for CRM and a good start to the new fiscal year. Last year, CRM hit $10 bln in annual sales for the first time. No other enterprise software company has achieved this scale faster than CRM and management wants to be the fastest to $20 bln as well. The company seems to be firing on all cylinders right now as demand is robust and the MuleSoft deal seems like a good fit.