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Marketing and AI Key Focus Areas for Salesforce’s Acquisition Spree

Posted on Monday, Nov 21st 2016

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This year, Salesforce (NYSE: CRM) has spent close to $5 billion on acquisitions, with the largest one being the $2.8 billion acquisition of e-commerce platform Demandware. Its most recent acquisition is that of marketing data startup Krux.

Salesforce’s Acquisitions

Marketing and artificial intelligence have been a key focus of Saleforce’s recent acquisitions. Its earlier acquisitions of ExactTarget, Buddy Media and Radian6 have been integrated into its Marketing Cloud. Earlier this year, it had acquired Israel-based data automation startup Implisit Insights for “tens of millions” and Palo Alto-based AI startup MetaMind for an undisclosed sum. These have now been packaged into Salesforce Einstein.

Last month, Salesforce announced its plans to acquire San Francisco-based startup Krux for $700 million. The acquisition is expected to close in January 2017. It is expected to beef up its artificial intelligence capabilities in the Marketing Cloud.

Krux uses artificial intelligence to mine data across the Internet and analyzes it for targeted marketing and advertising. Krux had raised a relatively modest $50 million from investors including Accel, Sapphire Ventures, and IDG. It has over 200 customers including Ticketmaster and L’Oréal.

Incidentally, Krux had been working closely with Salesforce as a partner. Another close partner in the marketing domain that Salesforce could have considered acquiring is Marketo (Nasdaq: MKTO). In May this year, Marketo was acquired by private equity firm Vista Equity Partners for $1.79 billion. In 2015, its revenue was $210 million and net loss was $71.5 million. It was founded in 2006 and went public in 2013. A pretty short life as a public company!

Salesforce’s Latest Innovations

In September, Salesforce unveiled Salesforce Einstein, which embeds artificial intelligence in the Salesforce Platform. It delivers advanced AI capabilities into sales, service, marketing and more, empowering companies to deliver more personalized and predictive customer experiences.

It also introduced Salesforce Commerce Cloud, which is based on its $2.8 billion acquisition of Demandware and enables brands to provide personalized experiences for shoppers that span web, mobile, social and in-store.

Salesforce’s Financials

For the third quarter of fiscal 2017, Salesforce’s revenue grew 25% over the year to $2.14 billion, above analyst estimate of $2.12 billion. Net loss widened to $37.3 million or $0.05 per share from $25.2 million or $0.04 per share a year ago. Non GAAP EPS was $0.24, beating analyst forecast of $0.21.

By segment, revenues from Subscription and Support services grew 24% over the year to $1.98 billion. Professional services and other revenues were up 39% to $160.8 million.

Salesforce ended the quarter with deferred revenue of $3.5 billion, up 23% y-o-y. Unbilled deferred revenue ended the third quarter at about $8.6 billion, up 28% year-over-year, including $350 million related to unbilled deferred revenue from the Demandware acquisition.

Sales Cloud grew 14% to $776.2 million, Service Cloud grew 26% to $589.9 million, App Cloud and others grew 38% to $370.7 million, while Marketing Cloud, which now includes the subscription and support revenue from Demandware, grew 46% to $247.2 million.

By region, Americas grew 27% to $1.6 billion, Europe grew 27% to $337.5 million, and Asia Pacific grew 29% to $209 million.

Salesforce has raised its full year 2017 revenue guidance yet again. It now expects revenue of $8.365 billion to $8.375 billion, or an increase of 25% to 26%. GAAP EPS is projected to be $0.24 to $0.25, while non-GAAP EPS is projected to be $0.97 to $0.98. Its earlier guidance was for revenue of $8.275 billion to $8.325 billion and non GAAP EPS of $0.93 to $0.95. The market was looking for revenues of $8.31 billion and an EPS of $0.95.

Salesforce expects to end the fourth quarter with revenue of $2.267 billion-$2.277 billion or an increase of 25% to 26%, GAAP loss of $0.10 to $0.09, and non GAAP EPS of $0.24-$0.25. The market had forecast the fourth quarter’s revenues at $2.12 billion and an EPS of $0.21.

For the full year 2018, Salesforce expects revenue of $10.1 to $10.15 billion, an increase of 21%. Analysts expect revenue of $10.07 billion.

Its stock is currently trading around $77.77 with a market cap of about $52.18 billion. Its 52-week range is $52.60 – $84.48.

Photo credit: Seesmic.com/Flickr.com.

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