Still Bullish On Salesforce.com

Despite crossing the $1 billion annual revenue milestone, Salesforce.com’s shares plunged amidst concerns about its “slow growth” and lower-than-expected deferred revenue and guidance.

On August 20, Salesforce.com (NASDAQ: CRM) reported Q2 revenue of $263.1 million, up 49% y-o-y and 6% q-o-q. Net income was $9.9 million or $0.08 per share (up 167%). Analysts had estimated earnings of $0.08 per share on revenue of $260.5 million.

Subscription and support revenues were $239.7 million, up 50% y-o-y and 6% q-o-q. Professional services and other revenues were $23.4 million, up 41% y-o-y and 5% q-o-q. The company added 4,100 customers in the quarter; net paying customers are now approximately 47,700, up 12,400 from last year.

Dell recently signed a three-year deal to use the company’s Force.com computing platform. Another ace up Salesforce.com’s sleeve is that it is the exclusive customer relationship management offering at Apple’s launch of the new iPhone 3G and App Store.

Salesforce is also developing its international presence. Nineteen percent of revenue came from Europe and 9% from Asia Pacific, while 72% came from the Americas.

Gross margin was 79%, flat with Q1 but up by about 300 basis points from last year. During the quarter, Salesforce.com generated approximately $53 million of operating cash, up 53%.

Deferred revenue was approximately $480 million, up 49% y-o-y and 2% q-o-q but about $8 million short of Street expectations. Last quarter, it was up 59% y-o-y but down 2% q-o-q. A major reason for the Street’s high expectations is the company’s performance last year; deferred revenue grew $140 million in Q4 last year compared with just $9 million this quarter.

On August 4, Salesforce.com closed a $31.5 million deal to acquire InStranet, the leading provider of knowledge management technology for B2C call centers, in its largest acquisition to date. This acquisition is expected to affect profit. However, the acquisition also puts them in direct competition with RightNow’s flagship knowledge management offering.

For Q309, Salesforce.com expects revenue between $273 million and $274 million. EPS is expected to be in the range of $0.06 to $0.07 and excluding the effect of the acquisition, EPS outlook is $0.08 to $0.09. Analysts had estimated earnings of $0.09 per share on revenue of $272.4 million.

For fiscal year 2009, the company raised its guidance yet again. It now expects revenue between $1.070 billion and $1.075 billion. EPS outlook is $0.34 to $0.35, up from prior guidance of $0.33 to $0.34. However, including the effect of the InStranet acquisition of about $0.05, EPS outlook is $0.29 to $0.30. Analysts had estimated full-year earnings of $0.35 per share which hadn’t accounted for the acquisition. The stock is currently trading around $53, down about $12 or 19% since the release. On June 23, it hit a 52-week high of $75.21.

I recently placed Salesforce.com at the top of my Top 8 SaaS stocks list, and it very well deserves to be there as it is the first SaaS company to reach the $1 billion milestone. I also believe that it is the company best positioned to go an acquisition spree in the next two years and build a robust portfolio of applications that can be sold to its existing customer base profitably, and with great channel leverage.