Salesforce (CRM, Financial), the world’s No. 1 customer relationship management software company, posted strong second-quarter 2018 earnings, achieving a huge morale-boosting milestone of $2.56 billion in quarterly revenues. That takes its annual revenue run rate to over $10 billion.
Salesforce has forecasted its double-digit growth run to continue in fiscal 2018; the company has guided for $10.35 billion in annual revenue, a growth of 23% to 24% compared to fiscal 2017.
"We had a phenomenal quarter of growth, reaching a huge milestone for the company, becoming the first enterprise cloud software company to break the $10 billion revenue run rate," said Marc Benioff, Salesforce chairman and CEO. "We did this faster than any other enterprise software company in history. Our continued momentum as the leader in CRM, the fastest-growing segment of our industry, combined with more than $15 billion in billed and unbilled deferred revenue, puts us well on the path to $20 billion and beyond.”
It was a strong statement from Salesforce’s CEO as the company moves beyond $10 billion in annual revenue and marches toward $15 billion and more over the next few years. What’s really heartening to see is that this is happening despite the fact that competition has intensified in the enterprise software management space with Oracle (ORCL, Financial) and Microsoft (MSFT, Financial) chasing Salesforce as hard as they can. Both companies have seen their SaaS revenues grow at double-digit rates, but Salesforce shows no signs of weakness due to the increased competition.
During the second quarter, Salesforce posted revenues of $2.56 billion, a growth of 26% compared to last year, which is one percentage point more than the growth it posted during the first quarter of the current fiscal. If the competition was really making things difficult for Salesforce, then a few things should have happened: Sales growth should have come down, and if growth is not dropping, then the cost for achieving that growth should have gone up.
But in Salesforce’s case, neither of those things happened, and it shows the kind of strength Salesforce has in the CRM market. Marketing and Sales, which form the bulk of Salesforce’s operating expenses, accounted for 46% of the company’s total revenue during the first half of the current fiscal – the same level as it was last year. Salesforce was able to increase revenue by 25% in the first six months of the current fiscal compared to last year, without increasing the cost of client acquisition.
Growth was across the board as Marketing Cloud led the charge with 36% growth, followed by Salesforce Platform with 32% growth compared to last year. Salesforce has been pushing hard toward being a platform rather than selling individual software products, and the strong growth of Salesforce Platform is great news for Salesforce’s long-term future.
As is the case with any hypergrowth stock, Salesforce continues to trade at strong valuation multiples. At the time of writing this article, Salesforce was trading at nearly 7 times sales, and the stock, which is up by more than 35% in the last year, might rise further due to the upward revision of fiscal 2018 guidance.
Disclosure: I have no positions in the stocks mentioned above and no intention to initiate a position in the next 72 hours.
