What’s Next For Salesforce.com?

SaaS customer relationship management (CRM) vendors Salesforce.com and RightNow recently reported second quarter results that beat estimates. Salesforce.com has been on an acquisition spree, acquiring eight companies over the year. What will be its next move? Let’s take a closer look.

Salesforce.com’s Financials
Salesforce.com (NYSE:CRM) recently reported second quarter revenue of $546 million, up 38%. Net loss was $4.3 million or $0.03 per share compared to net income of$14.7 million or $0.11 per share last year. Non-GAAP EPS was up 3% year-over-year to $0.30. Analysts expected non-GAAP earnings of $0.30 on revenue of $529 million. Non-GAAP gross margin remained unchanged at 82% compared to last quarter and the year-ago quarter. The company ended the quarter with a $1.3 billion cash balance.

During the quarter, Salesforce.com added more than 800 people, including more than 300 from the acquisition of Radian6. The company’s total employee base is now more than 6,300, up 40% over 2010. It expects aggressive hiring to continue through the second half of fiscal year 2012. The focus of hiring has been sales and marketing, and during the quarter, sales and marketing expenses were up 50% year-over-year at 46% of revenue. R&D expense was up 60% year-over-year to 11% of revenue.

Subscription and support revenue in the second quarter was $509 million, up 38%, while professional services and other revenue was up 44% to $37 million. Salesforce.com added 6,300 customers during the quarter, bringing its total customer count to 104,000, up 26% over last year. Deferred revenue was $935 million, an increase of 37% y-o-y.

On a regional basis, revenue in the Americas increased 34% from a year ago to $367 million. European revenue of $102 million rose 56% year-over-year. Asia revenue of roughly $77 million increased 42% in dollars. While second quarter new business in Japan was down slightly over a year ago, the demand environment improved significantly from Q1.

For the third quarter, Salesforce.com expects revenue in the range of $568 million to $570 million, GAAP loss per share of $0.06 to $0.05 and non-GAAP EPS of $0.30 to $0.31. Analysts expect second quarter earnings to be $0.27 on revenue of $505.2 million.

It raised its fiscal 2012 revenue guidance to a range of $2.22 billion to $2.23 billion from its earlier guidance of $2.15 billion to $2.17 billion. Salesforce.com reported revenue of $1.66 billion in 2010. For the full year, it lowered its GAAP earnings guidance. It now expects GAAP net loss of ($0.11) to ($0.09) and non-GAAP EPS of $1.30 to $1.32. The stock is trading around $117 with a market cap of about $16 billion. It hit a 52-week high of $151.26 on December 9.

RightNow’s Financials
Another SaaS CRM company, RightNow (NASDAQ:RNOW), recently reported second quarter revenue of $54.8 million, up 28%. Net income was $0.2 million or $0.01 per share compared to net income of $1.4 million or $0.04 per share last year. Gross margin was 72%. Recurring revenue in the second quarter of 2011 increased 31% to $45.4 million from $34.7 million in the second quarter of 2010. RightNow added 76 new customers in the quarter. Further, the company ended the quarter with about $256 million in cash and investments.

For the third quarter, RightNow expects revenue to be about $57 million and break-even EPS. For the full year of 2011, RightNow expects revenue of $226 million and EPS of $0.08. It reported annual revenue of $185.5 million in 2010.

The stock is currently trading around $28 with a market cap of about $925 million. It hit a 52-week high of $32.43 on March 14.

Salesforce.com’s Acquisition Strategy

Over the past year, Salesforce.com has made eight acquisitions. These include

• Jigsaw Data Corp, a company offering crowd-sourced contact management data (April 2010 for $142 million)
• Sitemasher, a website building tool for sophisticated websites (June 2010)
• Activa Live Chat, enterprise chat startup (September 2010)
• Etacts, email contact manager (December 2010)
• Heroku, Ruby development platform (December 2010 for $212 million)
• Radian6, social media management firm (March 2011 for $340 million)
• Dimdim, a Web conferencing company (January 2011 for $31 million)
• Manymoon, social productivity app maker (February 2011)

The strategy behind these acquisitions has been either to enhance CRM products like Chatter with a social networking focus or enhance its platform. What could be Salesforce.com’s next acquisition?

Dan Woods on Forbes believe Salesforce’s next major move will be in business intelligence. He says

“Salesforce.com has done little to help companies with reporting and data visualization. Salesforce’s reporting capabilities are rather prosaic. They work, they are easy to use, but they don’t knock your socks off. It is not easy, for example, to bring in data from other applications and tell a comprehensive story using Salesforce reports. It is not easy to bring all the information inside Salesforce together. Both QlikView and TIBCO Spotfire have connectors that can reach into Salesforce data and help solve these problems.

My guess is that Salesforce’s next major move will be to acquire a data analysis and visualization product. The problem for Salesforce is that both of the logical targets mentioned would be much more expensive than the acquisitions so far. Newly public QlikView has a market cap of $2 billion. TIBCO Spotfire is part of TIBCO, but it would probably cost more than the $200 to $400 million Salesforce has been paying for other companies.”

That could be interesting. Some time ago I had suggested an alliance between BI leader SAP and Salesforce.com.

Larry Dignan on ZDNet says that Salesforce.com may be close to acquiring Assistly and the announcement might be slated for Dreamforce next week. Salesforce is already an investor in the company, which provides a help desk service that integrates CRM and social streams.

Let’s wait and see!