Much like a few other well-known cloud software firms, Salesforce.com's (CRM) successful efforts to cross-sell apps and services to its installed base are helping it defy long-standing fears of a major growth slowdown.
The cloud CRM software giant's latest results and guidance provide fresh evidence of its success on this front. And this success, in turn, gives some reasons to think Salesforce's latest and costliest acquisition might pay off.
Results and Guidance
After the bell on Tuesday, Salesforce reported April quarter (fiscal first quarter) revenue of $3.01 billion (up 25% in dollars and 22% in constant currency) and non-GAAP EPS of $0.74. Revenue topped a $2.94 billion consensus; after backing out a $0.22 boost from an accounting change related to Salesforce's investment portfolio, EPS beat consensus by $0.06.
Salesforce also reported its closely-watched billings -- defined as revenue plus the sequential change in unearned revenue that it has billed but not recorded on its income statement -- rose a stronger-than-expected 16% to $2.21 billion. "Remaining transaction price," defined as all of the future revenue Salesforce has under contract and hasn't recognized yet, grew 36% to $20.4 billion.
July quarter and fiscal 2019 (ends in January 2019) guidance can't be compared with consensus estimates, since it now accounts for Salesforce's $6.5 billion purchase of app integration software firm MuleSoft. The MuleSoft deal closely shortly after the end of the April quarter, and doesn't seem to have been factored into some Salesforce estimates.
But overall, guidance is encouraging. Fiscal 2019 sales guidance has been hiked by $475 million to $13.075 billion to $13.125 billion. MuleSoft accounts for $315 million of the guidance boost, and some of the rest appears to stem from an accounting change that leads revenue to be recognized faster. However, after accounting for all the moving parts, guidance does appear to be a little better than expected.
Shares rose 4.7% in after-hours trading to $132.80 thanks to the results, making new highs along the way.
What's Driving Growth
Salesforce's mainstay Sales Cloud platform, which provides software that's used by legions of salespeople to track leads and close deals, saw revenue rise a relatively modest 16% last quarter to $965 million. Growth was markedly stronger for Salesforce's three other reporting segments, which collectively now account for about two-thirds of its revenue.
The Service Cloud segment, which provides customer support and engagement software, saw revenue rise 29% to $848 million. The Marketing and Commerce Cloud segment, which provides software for running marketing campaigns and crafting online shopping experiences, saw revenue rise 41% to $422 million. And the Salesforce Platform and Other segment, which includes a pair of popular platforms for developing cloud business apps (Heroku and Force.com), saw revenue rise 36% to $575 million.
Just as cloud HR software leader Workday (WDAY) has had a lot of success cross-selling financial management apps, analytics tools and other software to enterprise clients, Salesforce's ability to cross-sell Sales Cloud clients on various other offerings has become a major growth driver. The company's massive (and occasionally-criticized) sales/marketing investments have helped out here. So have efforts to create industry-specific CRM products for verticals such as financial services, healthcare and retail.
And as CEO Marc Benioff was eager to discuss on the earnings call, Salesforce's efforts to make the whole of its product line more than the sum of its parts also can't be overlooked. For example, by enabling Sales Cloud and Service Cloud apps to share data with each other, and by using Salesforce's Einstein machine learning platform to surface insights from data produced by one app within another app.
Going forward, MuleSoft should provide a fresh boost to these efforts. The cloud-based versions of MuleSoft's app integration offerings for enterprise developers are a natural complement to Salesforce's app development platforms. Moreover, as Benioff reiterated on the call, Salesforce sees an opportunity to sell enterprises on using MuleSoft's tools to unlock data that could then be accessed and analyzed by Einstein.
All of these moves come as the CRM market continues to outgrow the broader enterprise software market, amid a shift in IT spending power towards chief marketing officers (CMOs). Research firm Gartner recently estimated global CRM software spending totaled $39.5 billion last year, and will rise 16% this year.Media/marketing software giant Adobe Systems ( ADBE) is betting big on this trend, as shown by its recent $1.68 billion deal to buy e-commerce software firm and Salesforce rival Magento. And Salesforce is clearly comfortable making big investments to profit from the trend as well.