TBR 4Q10 Salesforce Initial Response
 

TBR 4Q10 Salesforce Initial Response

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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company ...

Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.

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TBR 4Q10 Salesforce Initial Response TBR 4Q10 Salesforce Initial Response Presentation Transcript

  • SOFTWARE BUSINESS QUARTERLYSM4Q10 INITIAL RESPONSESalesforce.comFourth Calendar Quarter 2010Fourth Fiscal Quarter 2011 Ended Jan. 31, 2011Publish Date: Feb. 25, 2011Authors: Jessica Breen (jessica.breen@tbri.com), SBQ Analyst,Jillian Mirandi, SBQ Research Analyst and Matthew Casey, SBQResearch Analyst TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .Content Editor: Stuart Williams, SBQ Director
  • Executive Summary TBRSalesforce.com sustained rapid growth by attracting new customerswith a differentiated portfolio, but investments contributed to profit loss TBR Position: SALESFORCE.COM 4Q10 PERFORMANCE VS. EXPECTATIONS (In $ Millions) Consensus Guidance Range Actual Acquisitions provide Salesforce.com with capabilities to expand its reach among customers Revenue $ 453 $447 - $449 $ 457 and developers. Operating Income N/A N/A $ (0.39) NON-GAAP EPS $ 0.26 $0.27 - $0.28 $ 0.31 • Salesforce.com made three acquisitions during the quarter to support growth and differentiate Coming Quarter its product set. Heroku will provide Salesforce.com with a developer base to create SALESFORCE.COM 1Q11 GUIDANCE AND EXPECTATIONS applications using Ruby. ManyMoon and Dimdim (In $ Millions) TBR Estimate Consensus Guidance Range will be integrated into the Salesforce.com Revenue $ 483 $ 471 $480 - $482 portfolio to add new features to Chatter and Operating Income $ 29 N/A N/A CRM applications. NON-GAAP EPS N/A $ 0.31 $0.26 - $0.27 • Revenue grew 29.0% year-to-year in 4Q10 to Salesforce.com Corporate Strategies: $456.9 million. Full-year revenue reached $1.66 billion, growing 25.8% year-to-year. Full-year • Grow revenue by adding net new customers and revenue in 2011 is expected to exceed $2 billion. expanding the Salesforce.com footprint in • Net new customers have doubled since accounts Salesforce.com reached the $1 billion threshold • Grow enterprise customer base and revenue by as a company. Its customer base reached 92,300 enabling customers and partners to customize and in 4Q10. deliver software through the Force.com platform • Deferred revenue grew 33%, reaching $935 • Develop a leading services support application million. Deferred revenue provides an indication portfolio to increase revenue from service of future performance, as Salesforce.com companies recognizes subscription revenue over the life of • Improve efficiency in the services organization to the contract. achieve profitable levels at the gross margin line2 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRAn increase in Salesforce.com’s customer base directly translated intorevenue growth during 4Q10 Key Developments • Salesforce.com is staying ahead through investments in acquisitions that provide new features to products. Salesforce.com’s • Customer growth increased 28.2% year-to-year, reaching 92,300. As a result, full-fiscal ability to year revenue reached $1.66 billion, growing 27% year-to-year. differentiate • As a result of $935 million in deferred revenue, a 33% year-to-year gain, solutions is the key Salesforce.com increased its full-year expectations for FY12 to a range of $2.03 billion to its success to $2.05 billion. This marks Salesforce.com crossing the $2 billion threshold, doubling in revenue compared to FY09. During that period, Salesforce.com also doubled its customer and subscriber base. Sustaining a • Salesforce.com’s ability to maintain double-digit growth of 30% year-to-year centers healthy ecosystem on its ability to create a virtuous cycle around partners, developers and customers. perpetuates growth • As a result, Salesforce.com spent most of 2H10 expanding its app development among partners, services and opening its doors to out-of-house developers. Salesforce.com had a developers and record turnout at its Dreamforce event in December, with 30,000 customers, customers developers and partners in attendance. • Salesforce.com will maintain and extend its installed base by continually delighting and satisfying customer needs through product enhancements. Small acquisitions that can Acquisitions be incorporated into new and existing product lines will reduce customer attrition and provide encourage adoption. Salesforce.com with the • The acquisitions of ManyMoon and Dimdim will ultimately enhance Chatter capabilities to capabilities by bringing new features to the platform. ManyMoon provides differentiate productivity tools, while Dimdim brings cloud collaboration and conferencing services offerings to Salesforce.com, as a well as a team of experienced developers. TBR believes both acquisitions will play an important role in expanding Salesforce.com’s developer community to maintain a healthy ecosystem of partners, developers and customers.3 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRDouble-digit growth in deferred revenue indicates sustained expansionpotential for Salesforce.com Quarterly Segment Performance 4Q10 Growth Segment Key Changes & Drivers Trends to Monitor Revenue Y/Y Chatter, the social networking License revenue growth is stable as solution from Salesforce.com, is a result of Salesforce.com’s $377.1 a key differentiator from subscription model. Deferred License million 30.9% competitors due to its enhanced revenue reached $935 million, (est.) features. TBR believes the new growing 33% year-to-year, which is application will be used to cross- an indicator of future performance. sell SaaS and PaaS offerings. TBR estimates license and TBR expects Salesforce.com to maintenance revenue based on sustain double-digit reported subscription revenue. $51.4 maintenance growth in tandem Maintenance Salesforce.com’s no-hardware value million, 30.9% with license growth as the proposition reduces the need for (est.) company releases new software support, allowing customers to and offerings. save money up front. TBR believes services revenue is Services growth slowed in likely to continue growing by comparison to prior quarters, likely $28.3 single digits, as Salesforce.com Services because Salesforce.com’s customer 6.3% million relies mainly on partners to base increased across 2010 provide services around following the recession. offerings.4 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRHowever, a focus on investment in acquisitions, headcount andDreamforce contributed to an operating loss during 4Q10Revenues• Subscription revenue increased 30.9% year-to-year to SALESFORCE.COM OPERATING METRICS TBR $500 $429 million. $400 $68• Services revenue rose 6.3% year-to-year to $58 COS In $ Millions $300 $68 $28 million. $36 R&D $200• Deferred revenue grew 33% year-to-year to $100 $224 $307 SG&A $935 million, a good indication of future revenue. $0 $26 $(0) Operating IncomeExpenses ($100) 4Q09 4Q10• G&A expenses as a percentage of revenue increased 50 SOURCE: SALESFORCE.COM basis points year-to-year, to 16.2%, mainly as a result of expenses associated with Dreamforce 2010. Note: Operating income was posted as a loss of $391,000• Sales & Marketing expenses grew 38.4% year-to-year to $233 million, or 51.0% of total revenue.• G&A expenses rose 33.8% year-to-year to $74 million, or TBR SALESFORCE.COM OPERATING RATIOS 16.2% of total revenue. 100% 19.2% 20.2% 80% COS• R&D expenses increased 57.8% year-to-year to $58 60% 47.6% S&M % Revenue million, or 12.6% of total revenue. 51.0% 40%Margins 20% 15.7% 16.2% G&A % Revenue 10.3%• Gross margin decreased 100 basis points year-to-year to 0% 7.2% -0.1% 12.6% R&D % Revenue 79.8%. Gross profit increased 27.5% year-to-year to -20% 4Q09 4Q10 Operating Margin $365 million.• Operating profit plummeted 101.5% year-to-year to SOURCE: SALESFORCE.COM a loss of $391,000 as a result of higher SG&A and R&D spending.5 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Go to Market & Product Strategies TBRSalesforce.com increased the capabilities of its applications byproviding customers with a management layer from partner BMC • Salesforce.com relies heavily on third parties to increase capabilities through app development and partnerships. By doing so, Salesforce.com can focus on its strengths, constant innovation and cloud platforms, while developers and partners provide functionality and customizations. This makes the platform more attractive to developers who want to target customers ranging from SMBs to large enterprises. • By partnering with BMC, Salesforce.com will expand its portfolio with new offerings, while BMC expands its core IT Service Management solution via cloud. The partnership will enable both vendors to reach new customers through enhanced functionality and deployment models. • BMC provides Salesforce.com with a management layer for its applications, in addition to greater exposure to large enterprise customers. • The RemedyForce solution combines BMC’s proven ITSM solutions with Salesforce.com’s cloud capabilities. Hosted on Force.com, RemedyForce provides IT departments (at both the Enterprise and SMB levels) the ability to manage their IT networks in the cloud. Software Services Services Strategies Product Strategies Stack Offerings • The Force.com platform attracts larger • Develop higher-level service capabilities to Idea customers looking to create custom support enterprise engagements Management Consult on-demand applications on the • Leverage partners through AppExchange Salesforce.com platform to offer integration and implementation Marketing • Leverage partner base through Premium services AppExchange to provide customized Service & • Leverage Force.com platform to increase add-ons and services Support opportunities for more complex, profitable • Bundle service and support in subscription Base service engagements Sales Force Support packages to provide customers with an • Offer prepackaged education and services Automation all-in-one package to speed customer adoption and minimize • Leverage acquisitions to expand portfolio Force.com Education the cost of providing base-level service and add capabilities in SaaS service areas and support6 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Go to Market & Product Strategies TBRSalesforce.com attracts developers to increase functionality andvertical customization on the Force.com platform• Salesforce.com’s approach to application development expands the versatility and capabilities of its enterprise cloud solutions. Through its wide array of applications, Salesforce.com provides increased functionality and vertical focus, attracting new customers while keeping current customers satisfied.• Salesforce.com’s new services for app development enable a wider variety of developers to design apps on Force.com. Stemming from both R&D and acquisition, new services on the Force.com platform include Appforce, Siteforce, VMforce, ISVforce and Heroku.• Salesforce.com’s agreement with Vmware, as well as its acquisition of Heroku, enable application-building services for a wider variety of development languages that attract an increasing number of developers. VMforce allows developers with knowledge of Java to develop apps, while Heroku adds Ruby on Rails.• ISVforce allows independent software vendors to design and sell apps through Force.com. Apps designed by outside parties are made available on AppExchange, Salesforce.com’s cloud app marketplace, and will run on Database.com. Salesforce.com 4Q10 Revenue Mix By LOB Indirect Sales Strategies Direct Sales Strategies Indirect revenue 5% Direct revenue 95% • Leverage partners through • Attract larger seat deals with AppExchange to provide Services 7% proven performance and customized add-ons, integration $28 million penetration with larger and vertical customization customers, including EMC, Cisco and Dell • Work with partners to generate Maintenance 11% sales leads and provide $51 million • Expand sales presence in EMEA implementation and integration and Asia Pacific to drive growth services in under-accessed regions License 82% $377 million7 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Resource Management Strategy TBRSalesforce.com invested in capabilities and employee talent to supportrapid scaling of its business Salesforce.com employs 5,306 globally Strategy ~490 employees are located • Salesforce.com rapidly increased headcount in 4Q10 in Asia Pacific to keep up with rapid revenue growth and demand, helping sales rise, but decreasing operating margin. ~961 employees are located in EMEA TBR SALESFORCE.COM REVENUE AND OPERATING INCOME ~3,855 employees are $475 90.0% located in the Americas $425 80.0% $375 70.0% In $ Millions $325 60.0% $275 50.0% $225 40.0% $175 30.0% $125 20.0% $75 10.0% SOURCE: SALESFORCE.COM AND TBR $25 0.0% -$25 -10.0% 4Q09 1Q10 2Q10 3Q10 4Q10 Leadership Changes Revenue Operating Margin Gross Margin • Jeff Lautenbach was appointed senior VP of SOURCE: SALESFORCE.COM Enterprise Commercial Sales for the Americas. • Salesforce.com made a significant increase to its Previously, Lautenbach held the position of VP of headcount on a year-to-year basis, reporting 5,306 Software, West IMT at IBM. • In January, Salesforce.com appointed Matt globally dispersed employees at the close of 4Q10, Miszewski as senior VP, Global Public Sector. up 33.7% from 4Q09. TBR estimates all business Miszewski comes to Salesforce from his previous functions grew in the double-digit range, mostly led position of GM, Worldwide Government at by an increase in R&D and S&M functions as Microsoft. Salesforce.com bolsters its employee base to • In November, Salesforce.com appointed JP support revenue growth. Rangaswami to the newly created position of chief scientist. Rangaswami previously held the same position at BT.8 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Income Statement SALESFORCE.COM TBR CONSOLIDATED STATEMENT OF INCOME (i n $ Thous a nds Except per Sha re Da ta ) TBR CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est. FISCAL QUARTER 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 Est. Net Sales $ 354,049 $ 376,813 $ 394,372 $ 429,087 $ 456,867 $ 483,000 Subscription and Support $ 327,394 $ 350,712 $ 368,951 $ 402,948 $ 428,534 $ 450,000 Professional Services and Other 26,655 26,101 25,421 26,139 28,333 33,000 Cost of Sales 68,059 71,581 77,790 82,131 92,311 93,000 Cost of Subscription and Support 42,428 44,057 48,981 54,089 61,116 61,000 Cost of Prof. Services and Other 25,631 27,524 28,809 28,042 31,195 32,000 Gross Profit $ 285,990 $ 305,232 $ 316,582 $ 346,956 $ 364,556 $ 390,000 Sales and Marketing 168,552 175,867 182,401 200,544 233,217 222,000 General and Administrative 55,472 56,193 61,569 63,951 74,200 76,000 Research and Development 36,447 40,122 42,930 47,305 57,530 63,000 Operating Income $ 25,519 $ 33,050 $ 29,682 $ 35,156 $ (391) $ 29,000 Other, Net (262) (1,973) (1,765) (921) (1,366) (1,000) Interest Expense (1,207) (7,060) (7,185) (7,374) (3,290) Investment Income 10,628 7,875 8,735 11,699 9,426 9,434 EBITD $ 34,678 $ 31,892 $ 29,467 $ 38,560 $ 4,379 $ 37,434 Provision for Income Taxes (12,263) (12,016) (12,884) (16,192) 6,491 (20,000) Income before Minority Interest 22,415 19,876 16,583 22,368 10,870 17,434 Minority interest (2,021) (2,131) (1,839) (1,296) 43 (1,000) Net Income $ 20,394 $ 17,745 $ 14,744 $ 21,072 $ 10,913 $ 16,434 Net Income per Share $ 0.16 $ 0.13 $ 0.11 $ 0.15 $ 0.08 $ 0.12 Diluted Shares Outstanding 130,687 132,251 134,176 137,044 140,199 140,000 AS A PERCENTAGE OF REVENUE Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 19.2% 19.0% 19.7% 19.1% 20.2% 19.3% Gross Margin 80.8% 81.0% 80.3% 80.9% 79.8% 80.7% Sales & Marketing 47.6% 46.7% 46.3% 46.7% 51.0% 46.0% General and Administrative 15.7% 14.9% 15.6% 14.9% 16.2% 15.7% SG&A 63.3% 61.6% 61.9% 61.6% 67.3% 61.7% R&D 10.3% 10.6% 10.9% 11.0% 12.6% 13.0% Operating Margin 7.2% 8.8% 7.5% 8.2% -0.1% 6.0% Other, Net -0.1% -0.5% -0.4% -0.2% -0.3% -0.2% EBITD 9.8% 8.5% 7.5% 9.0% 1.0% 7.8% Income Taxes -3.5% -3.2% -3.3% -3.8% 1.4% -4.1% Net Margin 5.8% 4.7% 3.7% 4.9% 2.4% 3.4% YEAR-TO-YEAR CHANGE Net Sales 22.3% 23.6% 24.8% 29.8% 29.0% 28.2% Cost of Goods Sold 15.9% 15.8% 24.5% 25.3% 35.6% 29.9% Gross Profit 23.9% 25.5% 24.9% 30.9% 27.5% 27.8% Sales and Marketing 16.7% 27.2% 24.7% 31.8% 38.4% 26.2% General and Administrative 35.9% 30.2% 31.7% 28.1% 33.8% 35.2% SG&A 20.9% 27.9% 26.4% 30.9% 37.2% 28.4% R&D 23.7% 27.0% 38.0% 44.4% 57.8% 57.0% Operating Income 58.6% 9.7% 0.7% 16.6% -101.5% -12.3% Other, Net -204.0% -631.8% -64.6% -174.1% -421.4% 49.3% EBITD 59.5% -8.4% -17.9% 4.2% -87.4% 17.4% Income Taxes -55.9% 24.1% 8.2% -4.0% 152.9% -66.4% Net Income 48.3% -3.7% -30.4% 1.8% -46.5% -7.4% SOURCE: SALESFORCE.COM9 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
  • Balance Sheet SALESFORCE.COM TBR CONSOLIDATED BALANCE SHEET TBR (i n $ Thous a nds ) CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 FISCAL QUARTER 4Q10 1Q11 2Q11 3Q11 4Q11 ASSETS Current Assets Cash & Short-Term Investments $ 1,011,306 $ 690,794 $ 409,925 $ 630,303 $ 424,292 Marketable Equity Securities 230,659 260,958 332,342 139,545 72,678 Accounts Receivable - Net 320,956 183,612 228,550 258,764 426,943 Deferred Commissions 47,388 46,215 47,093 50,361 67,774 Deferred Income Taxes 40,116 36,315 44,088 49,620 27,516 Prepaid Expenses and Other 55,734 45,858 50,138 64,343 55,721 Total Current Assets $ 1,706,159 $ 1,263,752 $ 1,112,136 $ 1,192,936 $ 1,074,924 Property, Plant, Equip. (Net of Dep.) 89,711 86,710 100,946 116,078 387,174 Marketable Equity Securities - Long term 485,083 949,796 1,116,661 1,032,592 910,587 Deferred Commissions - Long term 28,140 29,132 30,396 32,856 48,842 Deferred Income Taxes - Long term 27,579 34,181 36,255 30,501 41,199 Goodwill 48,955 47,749 184,539 187,038 396,081 Other Assets 39,765 41,727 53,357 69,194 104,371 Capitalized Software 34,809 35,050 64,186 79,499 127,987 Total Assets $ 2,460,201 $ 2,488,097 $ 2,698,476 $ 2,740,694 $ 3,091,165 LIABILITIES & EQUITY Current Liabilities Accounts Payable $ 14,791 $ 13,133 $ 20,745 $ 23,320 $ 18,106 Accrued Expenses & other liability 194,738 171,612 236,034 287,627 345,121 Income Taxes Payable 8,424 5,901 8,890 9,644 Deferred Revenue 690,177 647,454 662,897 672,454 913,239 Total Current Liabilities $ 908,130 $ 838,100 $ 928,566 $ 993,045 $ 1,276,466 Long-term Obligations 13,485 11,805 14,577 27,949 25,487 0.75% Convertible senior notes, due 2015 450,198 455,649 461,182 466,847 472,538 Income Taxes Payable 17,551 17,101 18,474 18,284 18,481 Deferred Revenue, Noncurrent 14,171 17,075 20,122 22,103 21,702 Minority Interest 12,864 13,857 14,929 2,178 Total Liabilities $ 1,416,399 $ 1,353,587 $ 1,457,850 $ 1,530,406 $ 1,814,674 Stockholders Equity Convertible preferred stock Common Stock 127 129 130 131 133 Addtl Paid-in Capital 938,544 1,010,005 1,093,591 1,041,005 1,098,604 Accumulated other comprehensive income (1,430) 70 7,855 9,030 6,719 Accumulated deficit 106,561 124,306 139,050 160,122 171,035 Total Stockholders Equity $ 1,043,802 $ 1,134,510 $ 1,240,626 $ 1,210,288 $ 1,276,491 Total Liabilities & Equity $ 2,460,201 $ 2,488,097 $ 2,698,476 $ 2,740,694 $ 3,091,165 FINANCIAL RATIOS Days Sales Outstanding 81.59 43.85 52.16 54.28 84.11 Fixed Asset Turnover 15.28 17.09 16.81 15.82 7.26 Days Cash Outstanding 315.71 227.32 169.39 161.47 97.90 Total Asset Turnover 0.69 0.61 0.61 0.63 0.63 Debt/Asset Ratio 0.58 0.54 0.54 0.56 0.59 Current Ratio 1.88 1.51 1.20 1.20 0.84 Return on Assets 4.7% 4.2% 3.4% 3.1% 2.4% Return on Equity 9.9% 8.8% 7.3% 6.7% 5.5% Revenue per Employee $ 328,945 $ 335,478 $ 327,363 $ 326,675 $ 312,314 Employee Headcount 3,969 4,106 4,447 4,758 5,306 SOURCE: SA LESFORCE.COM10 Salesforce.com 4Q10 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
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