Salesforce.com Inc. (CRM) reported fourth quarter fiscal 2012 adjusted net income of 9 cents per share, well ahead of the Zacks Consensus Estimate of 4 cents.
Revenues in the quarter were $632.0 million, up 38.3% from $456.9 million in the year-ago quarter. However, reported revenues missed the company’s guidance range of $673.0 million to $678.0 million. The company also reported a small forex gain of $2.0 million. Moreover, the company also benefited from a sustained decline in dollar attrition, which fell for the tenth consecutive quarter.
Segment wise, Subscription and Support revenues escalated 38.7% year over year to $594.3 million. Professional Services and Other revenues increased 32.8% from the year-earlier quarter to $37.6 million.
Geographically, on a year-over-year basis, revenues in the Americas improved 41.4% to $436.2 million, contributing 69.0% to the total revenue; Europe shot up 30.4% to $108.1 million, contributing 17.0%; while Asia-Pacific grew 33.9% to $87.5 million, contributing 14.0%.
Operating Results
Gross profit on a GAAP basis was $495.6 million, up 35.9% year over year. GAAP gross margin was 78.0%, down from 80.0% in the year-ago quarter. The gross margin deterioration was primarily the result of extra costs associated with recent acquisitions and some data center investments.
Operating expenses rose 37.5% year over year on the back of 40.1% rise in research and development expense, 40.4% increase in sales and marketing expense and 26.4% higher general administrative expense. The operating expense growth rate was much higher than that of revenue growth and this resulted in an operating loss on a GAAP basis.
Operating loss of $6.4 million during the quarter was wider than the year-ago quarter loss of $0.4 million. Operating loss margin was (1.0%) versus break even in the prior-year quarter. The lackluster operating performance was due to an increase in operating performance.
GAAP net loss in the quarter was $4.08 million or 3 cents compared with a net income of $10.9 million or 8 cents in the comparable quarter last year.
Excluding special items but including stock-based compensation expense, adjusted net income was 9 cents per share compared with 14 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $777.9 million, up from $645.9 million in the prior quarter. Accounts receivable increased $371.4 million from the prior quarter to $683.7 million. Salesforce.com has no long-term debt. Total deferred revenue in the quarter was $1291.6 million, up from $917.9 million in the previous quarter.
Cash from operating activities was $240.4 million compared with $128.7 million in the prior quarter. Capital expenditure was $44.6 million. Free cash flow was $195.7 million.
Guidance
Revenue for the first quarter of fiscal 2013 is projected in the range of $673 million to $678 million. GAAP net loss per share is expected to be in the range of ($0.19) to ($0.18), while diluted non-GAAP EPS is expected to be in the range of 33 cents to 34 cents.
Revenue for fiscal 2013 is projected in the range of $2.92 billion to $2.95 billion. GAAP net loss per share is expected to be in the range of ($0.55) to ($0.51) while diluted non-GAAP EPS is expected to be in the range of $1.58 to $1.62.
Conclusion
Salesforce.com reported decent fourth quarter 2012 results. The earnings guidance is also decent, but cost increase may offset revenue growth to a certain extent. We are positive about the company’s entire product line, but are apprehensive about the rise in R&D investments, which could rationalize margins to some extent. However, we also expect Chatter to be a key driver for Salesforce.com’s enterprise license agreements.
We, however, caution investors about strong competition in CRM application and cloud-computing areas. Google Inc. (GOOG) and MicrosoftCorp. (MSFT) are worthy of special mention, since they have been fighting to win government clients at local, state and federal levels to deploy their online e-mail and other applications that fit into the cloud-computing space.
The company has a Zacks #3 Rank, implying a short-term Hold rating.
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