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Posted on Monday, May 22nd 2017

salesforcesign2 (NYSE: CRM) recently reported its quarter’s results that continued to outpace market expectations. It also revised its outlook upwards for the year. According to Piper Jaffray, the company is the “most attractive stock” in its universe. Latest IDC results showcase how Salesforce continues to take market share away from the likes of Oracle and SAP. 

Salesforce’s Financials

For the first quarter of the year, Salesforce’s revenue grew 25% over the year to $2.39 billion, above analyst projection of $2.35 billion. EPS of $0.28 was also ahead of the market’s forecast of $0.26 for the quarter.

By segment, revenues from Subscription and support revenues grew 24% to $2.2 billion. Professional services and other revenues came in at $187 million, reporting an increase of 32% year-over-year. Within the subscription revenues, sales cloud revenues increased 14% to $829.6 million. Service cloud revenues grew 21% to $651.2 million. Platform and other revenues improved 32% to $431.1 million, and Marketing and Commerce Cloud revenues grew 56% to $289 million.

For the current quarter, Salesforce expects revenues of $2.51-$2.52 billion with an EPS of $0.31-$0.32. The market was looking for revenues of $2.48 billion and an EPS of $0.31. Salesforce raised the expectations for the year to revenues of $10.25-$10.3 billion and an EPS of $1.28-$1.30. The market had forecast revenues at $10.18 billion and an EPS of $1.29.

Salesforce AI’s Retail Focus

Salesforce is focusing huge efforts on Artificial Intelligence. Last week, it announced new Commerce Cloud Einstein innovations that will help retailers deliver personalized, AI-powered experiences for shoppers spanning the entire gamut of web, mobile, social, and in-store operations. The improvements include new Order Management features, Mobile Site Reference Architecture blueprints, and Google Android Pay integration. AI capabilities will allow retailers to offer focused product recommendations for online shoppers and smarter interactions with in-store associates.

The Commerce Cloud Einstein already powers over 2,000 commerce sites in 53 countries. The new features will help it deliver predictive and personalized shopping experiences. It will be able to leverage machine learning to personalize search results and will leverage order history and web behavior to build a predictive model personalized for each shopper. New Order Management will allow retailers with intelligent algorithms to connect customer demand with inventory supply. New Mobile Site Reference Architecture will provide retailers with guidance based on best practices in mobile site design, merchandising, and technical architecture. And, the new Android Pay Integration will offer seamless, hassle-free checkouts.

Commerce Cloud has been doing rather well for Salesforce. In March this year, it was also named a leader by The Forrester Wave report as it received the highest possible score for market presence. By adding Einstein to the offering, Salesforce is ensuring that it maintains its lead in the market.

Salesforce also announced an extended partnership with IBM to drive the AI business. Through the partnership, the two companies will work together in their business software’s AI capabilities. IBM’s Watson and Salesforce’s Einstein will come together to improve customer interactions in sales, service, marketing, and e-commerce.

Salesforce also joined the Partnership on AI, a collection of companies and non-profits committed to sharing best practices of AI research. The existing members of the group include names like Facebook, Amazon, Google, IBM, Microsoft, and Apple. Together, these companies will work together to motivate researchers in the field and will establish topic and sector-specific work groups.

Its stock is currently trading at $87.4 with a market capitalization of $61.7 billion. It has recovered from the year low of $66.43 it had reached in December last year. Earlier last week, the stock had touched a high of $90.28.

stock chart

Salesforce’s focus on AI takes me back to my discussion earlier this year with SugarCRM’s Chief Product Officer, Rich Green. While there has been enough talk of enhancing the power of CRM with AI, there is still a long way to go before one actually witnesses case studies on worthwhile adoption of the technology. As Rich said then, there are several companies in the space trying to make a mark in the space, but very few have the required scale, investment, and expertise to really build general-purpose machine learning and narrow AI. The industry is dealing with two basic roadblocks in the space – first, the development of the technology and second, the adoption.

Salesforce may be able to build out the technology, but deploying it and seeing people have their “judgment questioned by insights generated by large machines will be a learning experience for individuals.” I still think that if the technology is built correctly, its adoption may not be as big a problem. Salesforce certainly seems to think the same.

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