According to Gartner, worldwide CRM software sales grew 13.3% to $23.2 billion in 2014. About 47% of the sales were SaaS-based, which has helped Salesforce (NYSE: CRM) grow its market share to 18.6% in the No.1 spot. Salesforce has been successful in leveraging SaaS in CRM for its growth. Its recent results are a testimony to that. But now, it is looking at analytics and verticals for more growth.
During the third quarter, revenue grew 24% over the year to $1.71 billion, slightly above analyst projection of $1.7 billion. Net loss was $25.2 million, or $0.04 per share, compared with a loss of $38.9 million, or $0.06 per share a year ago. Non GAAP EPS was $0.21, ahead of the analyst estimate of $0.19.
Deferred revenue increased 28% to $2.85 billion. Unbilled deferred revenue was $6.7 billion, up 24%. Cash flow from operations for the quarter decreased 4% y-o-y and 61% q-o-q to $118 million and they ended the quarter with overall cash, cash equivalents and marketable securities of $2.3 billion.
By segment, revenues from Subscription and Support services grew 24% over the year to $1.59 billion and Professional services and other revenues were up 21% to $115 million. Revenue from Sales Cloud grew 10%, Service Cloud grew 38%, App Cloud and other grew 40%, and Marketing Cloud grew 29%.
By region, revenue from Americas grew 27%, EMEA grew 28%, and Asia-Pacific grew 25%.
For the fourth quarter, Salesforce expects revenues of $1.78 billion-$1.79 billion or a y-o-y growth of 23% to 24%, GAAP loss of $0.09 to $0.08, and non GAAP EPS of $0.18 to $0.19. It has raised the full year guidance slightly. Full year revenue is now expected to be $6.64 billion to $6.65 billion and non GAAP EPS is expected to be $0.74 to $0.75. It had previously projected non GAAP EPS of $0.70 to $0.72 on revenue of $6.6 billion to $6.63 billion.
Last year, Salesforce launched its Wave Analytics Cloud, which is expected to help it reach its target of $10 billion annual revenue. Another indicator for the importance of analytics is the news that it has roped in Microsoft’s CRM Business Apps Division Head Bob Stutz to head its Analytics Division. It has also rolled out new analytics functions to the Salesforce Marketing Cloud by leveraging machine learning and data science to score and segment customers in real-time. However, some market reports suggest that its analytics cloud might not be gaining much traction due its high pricing.
According to a Research and Markets report, the global Business Intelligence and Analytics Software Market is expected to grow from $17.90 billion in 2014 to $26.78 billion by 2019, at a CAGR of 8.4%. The market is however crowded with several old and new players like Tableau, Qlik, Microsoft, SAS, Oracle, IBM, and SAP. But with more than 100,000 customers and roughly 25 million users, Salesforce could break in successfully.
Verticals a Key Focus
Another new area of focus for Salesforce is Industry Verticals and developing tailor-made products for specific industries like public sector, financial services, healthcare and life sciences. Analysts believe that if Salesforce successfully leverages its strength in the CRM market to expand into industry verticals, it may be able to extend its annual revenue growth of over 20% consistently over the medium term.
This might mean significant development costs, but if you look at the bright side, Salesforce will be looking at increasing sales from existing customers. This in turn would mean lower marketing costs that could offset the high development costs. And in the long-term, these could turn into profitable channels for revenue.
We have already seen this trend for industry-specific cloud solutions in companies like Bullhorn and Vlocity. This is a natural evolution toward the industry cloud as the cloud becomes more prevalent and accepted. In my Thought Leaders in Cloud Computing discussion with David Schmaier, I discuss this trend and the future of enterprise software with him. Salesforce Ventures is an investor for Vlocity, which develops industry-specific cloud solutions.
Bullhorn is a cloud-based vertical CRM solution provider for companies in service-based industries. It is not yet a Billion Dollar Unicorn club member, but given its strong financials, it is likely to get there soon enough. You can listen to Bullhorn’s CEO, Art Papas, when he joined me at the 1M/1M Roundtable in June this year.