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Salesforce slides after disappointing revenue forecast

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Salesforce.com Inc. gave a revenue forecast that fell short of estimates, stoking concern the torrid pace of the cloud software maker's growth has stalled as it matures into a larger company.

[SAN FRANCISCO] Salesforce.com Inc. gave a revenue forecast that fell short of estimates, stoking concern the torrid pace of the cloud software maker's growth has stalled as it matures into a larger company. Shares declined about 3 per cent in extended trading.

Sales will be US$3.67 billion to US$3.68 billion in the period ending in April, the San Francisco-based company said Monday in a statement. On average, analysts predicted US$3.7 billion, according to data compiled by Bloomberg. The company's profit forecast also missed projections.

Salesforce's guidance suggests the top seller of cloud-based customer-relations software, now a public company for almost 15 years, may not be able to continue to expand at its previous rapid rate. The projected revenue increase of 22 per cent in the current quarter would be the smallest year-over-year gain since at least 2010. That disappointed shareholders who were looking for stronger growth based on the company's broader product lineup and an increase of bigger deals with customers.

"Investors like to see an acceleration,'' said Pat Walravens, an analyst at JMP Securities.

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Salesforce co-chief executive officers Marc Benioff and Keith Block announced a new annual revenue goal of US$26 billion to US$28 billion by fiscal year 2023. To reach the target, Salesforce is spending a lot of money opening new offices around the world, hiring more workers and buying other businesses over the last year. The company, with a workforce of 35,995 as of Jan 31, has said it plans to hire about 1,500 new employees in Ireland over the next five years.

Revenue increased 26 per cent to US$3.6 billion in the fiscal fourth quarter. Block brushed off any issues with Salesforce's growth.

"We just finished an outstanding fourth quarter and we feel very, very good about the business,'' he said in an interview. "Our guide reflects our business. It's strong."

The stock has gained 16 per cent this year, closing at US$158.50 in New York.

Salesforce made its name by helping corporate clients better target, communicate with and understand their customers. The software maker began with Sales Cloud, a tool that helped account representatives keep track of the selling process, which is now a US$4 billion annual business. With that scale has come slower growth - 11 per cent in the recent quarter.

The sales pace of Service Cloud, which helps businesses provide customer service or communicate with field workers, also has declined. The unit's year-over-year increase was 22 per cent in the quarter, compared with 24 per cent in the fiscal third quarter and 27 per cent in the fiscal second quarter.

Marketing Cloud revenue growth also slowed in the quarter, hampered by the product's reliance on email solutions while brands are focusing more on in-app and push notifications, according to research by Walravens.

Bloomberg