For Salesforce.com Inc. (CRM, Financial), it appears two heads are better than one. Under the tutelage and guidance of co-chairmen Marc Benioff and Keith Block, the company reported second-quarter adjusted earnings of 71 cents per share on revenue of $3.28 billion, an increase of 27% from the prior-year quarter. The Street consensus was for 47 cents a share on $3.23 billion.
The company offered guidance for the third quarter of 49 cents to 50 cents per share, which was below analysts’ projections of 53 cents as share. The stock responded unfavorably to the third-quarter estimates by dropping 1% to $152.91.
Unearned revenue, which includes future billings, grew 24% to $5.88 billion, surpassing the Stifel Nicolaus & Co. expectation of growing 23% year over year. The company reported a second-quarter profit of $299 million, or 39 cents a share, compared with a profit of $17.7 million, or 2 cents a share, for the same quarter the previous year.
However, the company said it received a tax benefit of 18 cents per share in connection with its purchase of data integration software company MuleSoft Inc., which was completed May 2.
Salesforce’s stock has surged 62% over the past 12 months, outshining rivals Microsoft (MSFT, Financial), SAP (SAP, Financial) and Oracle (ORCL, Financial). The company’s stellar second-quarter earnings, in part, were helped by its recent $6.5 billion acquisition of MuleSoft.
Mulesoft’s integration software technology greatly facilitates business customers' ability to efficiently and expeditiously transfer or export data from older legacy computer systems directly to the cloud. The company contributed $122 million to Salesforce's total revenue for the quarter, though it had the effect of diluting earnings.
As more and more corporate IT systems begin their migration to the cloud, there is an enormous demand for software services that can make an inordinately expensive data transfer process from legacy database systems less cumbersome and more cost-effective and efficient. The purchase of MuleSoft allows Salesforce to continue to tap into this lucrative market.
Benioff and Block have grown Salesforce into a $10 billion company. If the current level of growth continues, the company could reach $13 billion in 2019. It should come as no surprise, then, that Salesforce slightly raised its guidance for its current fiscal year revenue to between $13.13 billion and $13.18 billion, up from the previous guidance of $13.08 billion to $13.13 billion.
Salesforce has set a lofty but attainable revenue goal of generating $23 billion in fiscal year 2022.
GuruFocus has detected two severe warning signs relating to the company’s decline in gross margins and asset growth that has exceeded revenue growth. Two medium signs relate to its stock price, which is approaching its 10-year high, and the price-sales ratio, which is close to its five-year high. Salesforce has one good sign for its consistent revenue per share growth.
Disclosure: I have no positions in any of the securities referenced in this article.
