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Salesforce Eyeing Europe For Growth

Posted on Thursday, Aug 27th 2015

According to Gartner, worldwide customer relationship management (CRM) software sales grew 13.3% to $23.2 billion in 2014. While the top 10 ranking order hasn’t changed and Salesforce continues to reign at the top, competition has been stiff in the market with price wars and consolidation. While the market share of Salesforce and Microsoft has increased, most vendors in the top 10 have lost market share.

Salesforce’s Financials

During second quarter, revenue at Salesforce (NYSE: CRM) grew 24% over the year to $1.63 billion, slightly above analyst projection of $1.6 billion. Non GAAP EPS of $0.19 was in line with analyst estimates. Cash flow from operations for the quarter grew 24% to $304 million and they ended the quarter with overall cash, cash equivalents and marketable securities of $2.07 billion.

During the quarter, revenues from Subscription and Support services grew 23% over the year to $1.52 billion and Professional services and other revenues were up 32% to $113 million.

For the third quarter, Salesforce expects revenues of $1.69 billion-$1.7 billion or a y-o-y growth of 22% to 23% and non GAAP EPS of$0.18 to $0.19.

Based on their robust performance in the quarter, they have raised their full year guidance. Full year revenue is now expected to be $6.6 billion to $6.625 billion. Non GAAP EPS is expected to be $0.70 to $0.72.

Europe Interesting for Salesforce

Salesforce has now become a Fortune 500 company and its next goal is to become the third largest software company after Microsoft and Oracle. It is currently the sixth largest software company. Over the past few years, Oracle has been building their cloud services through acquisitions of big companies like Eloqua, RightNow, and Responsys. During the earnings call, CEO Marc Benioff said that companies like Oracle and SAP have been slow to move their customers to the cloud and this resistance to new technologies has affected their results for the past few quarters.

Salesforce is also focusing on expanding internationally, and the EMEA region is of particular interest to them. They recently landed a deal with Enel, Europe’s largest power company with 61 million customers. They are now Enel’s strategic partner for the transformation of their customer engagement platform, leveraging communities, sales and service, and analytics. They will also be building an agility layer around their legacy on-premise SAP system.

Currently, EMEA accounts for about $1 billion or less than 20% of its annual revenue. Rivals SAP and Oracle, on the other hand, have a much larger market share in the region, but Salesforce is now looking to grab their share.

According to Gartner, there is strong demand for SaaS, accounting for almost 47% of total CRM software revenue in 2014. Organizations of all sizes are seeking easier-to-deploy and faster-ROI alternatives to modernizing legacy systems, implementing new applications, or providing alternative complementary functionality and this is what is working in favor of Saleforce.

Their stock is trading at $68.52 with a market capitalization of $44.92 billion. It hit an all-time high of $75.71 in June this year.

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