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What SaaS Products Built on Salesforce.com’s PaaS Have Gained Substantial Traction?

Posted on Wednesday, Mar 6th 2019

Earlier this week, Salesforce.com (NYSE: CRM) announced its fourth quarter results. While the company outpaced market expectations for the quarter, its weak outlook has sent the stock falling. In the after hours trading session, its stock slipped 3%.

Salesforce’s Financials

Salesforce’s fourth quarter revenues grew 26% over the year to $3.6 billion, above analyst projections of $3.56 billion. Salesforce reported billings of $6.42 billion. Net income grew an impressive 76% over the year to $362 million. Adjusted EPS came in at $0.70, compared with the Street’s forecast of $0.55 for the quarter.

By segment, Subscription and support revenues grew 26% to $3.38 billion, and professional services and other revenues grew 16% to $228 million.

Among other metrics, Salesforce’s unearned revenue or business that has been booked, but not delivered, grew 22% to $8.56 billion. Total Remaining Performance Obligation of revenues grew 25% to $25.7 billion.

For the year, Salesforce saw revenues grow 26% to $13.28 billion with subscription and support revenues growing 27% to $12.41 billion and professional services and other revenues growing 12% to $869 million. It ended the year with GAAP diluted earnings of $1.43 and non-GAAP diluted earnings of $2.75 per share.

Within the subscription business, Salesforce ended the year with sales cloud business growing 13% to $4 billion. Service cloud revenues grew 26% over the year to $3.6 billion and its platform and other revenues grew an impressive 49% to $2.9 billion. Marketing cloud and commercial cloud business also reported a strong 37% growth to $1.9 billion.

For the current quarter, Salesforce forecast revenues of $3.67-$3.68 million with an adjusted EPS of $0.60-$0.61 versus analyst estimates of EPS of $0.63 on revenue of $3.7 billion. The market was looking for revenues of $3.69 billion with an adjusted EPS of $0.63. Salesforce expects to end the current year with revenues of $15.95-$16.05 billion and an adjusted EPS of $2.74-$2.75. The Street had forecast revenues of $15.97 billion with an EPS of $2.75 for the year.

Salesforce is now targeting revenues of $26-$28 billion by fiscal year 2023. Its management believes that $30 billion in revenues is “right around the corner”.

Salesforce’s Customer 360 Offering

Salesforce recently announced its plans to release Customer 360, a new offering for its Customer Success platform. Customer 360 will connect CRM apps and provide organizations with a single holistic view of the customer’s profile. It will help organizations connect and map customer records, reconcile customers’ identity across different platforms, and build seamless experiences across Salesforce’s key offerings. For instance, if a customer adds merchandise to a shopping cart on a Commerce Cloud-powered website but does not check out, a campaign in the Marketing Cloud will be triggered to attract the customer back to the cart with a discount code or a simple reminder.

Salesforce realizes that besides the marketing, commerce and service clouds, for an organization to get a complete view of the customer, it must access data from several other systems as well. To cater to this requirement, Salesforce will implement API-led connectivity across any application, data, or device with MuleSoft Anypoint Platform and then connect these APIs directly to Customer 360. By integrating the with MuleSoft and Customer 360 platform, Salesforce customers will be able to connect with and understand their customers in a truly holistic way.

Salesforce believes that its total addressable market (TAM) in 2023 is $143 billion of which the Platforms and others segment is the biggest opportunity with a $32 billion TAM.

To address this market, Salesforce is focusing on apps and platform applications that integrate mobile, social and big data, in addition to AI, machine learning, and predictive intelligence. For instance, within its Community cloud, Salesforce recently added the Mobile Publisher, which allows companies to build apps using drag-and-drop tools on a mobile device. The new service ensures that Salesforce customers can build their apps on their own instead of relying on developers. It also updated its Commerce Cloud with tools to improve sales performance using APIs that can extend Einstein AI-powered commerce and image search.

Salesforce’s Platform Strategy

Besides developing its SaaS products, Salesforce is also operating a very healthy PaaS offering. Salesforce opened its platform to third party developers back in 2005. Since then, it has seen significant growth of its PaaS offering. Today, apps created in the Salesforce Platform are created for mobile and social use. Developers have access to a number of open-source languages, including Ruby, Java, JavaScript, C++, Python, and Node.js. It has simplified the development by providing automatic and custom microservices that help developers manage their processes better and template apps that can be customized in AppExchange to get the customer’s app deployed faster. The services run on Force.com and Heroku.

Salesforce’s PaaS has helped provide the backbone for several startups. For instance, Apttus, a leading Configure-Price-Quote (CPQ) and contract management vendor has delivered its enterprise-class application natively on the Salesforce platform. Apttus’ Quote-to-Cash solutions benefits from Salesforce’s mobile access, advanced analytics, and the ability to run business in multiple currencies and languages while delivering an intuitive user interface and flexible architecture. What started as a bootstrapped venture in 2006 is today a leading CPQ player with revenues north of $160 million and a valuation of over $1.6 billion. Apttus had raised $404 million overall and was sold last year to private equity player Thoma Bravo for an undisclosed amount. Analysts expect the deal value to be in between $1-$2 billion.

Apttus’s biggest competitor SteelBrick was also built on Force.com. In 2015, Salesforce acquired SteelBrick for an estimated $360 million. Prior to the acquisition, SteelBrick had raised $78 million from investors including IVP, Shasta Ventures, Emergence, and Salesforce Ventures. The SteelBrick acquisition helped Salesforce develop its own CPQ offering to compete with Apttus.

Other players that have benefited from Force.com include FinancialForce.com and ServiceMax. FinancialForce.com has developed its accounting, ordering and billing, professional services automation, and service resource planning on the Force platform. Founded in 2009, FinancialForce.com has raised $220 million in funding from investors including TCV, Unit 4 and Salesforce Ventures. It is expected to be operating at revenues of $95 million annually and was last valued at $530 million in 2015. ServiceMax was founded in 2007 and has built on Force.com to improve customer experience by ensuring that each service customers’ contextual intelligence can be seen in real-time by everyone involved in serving customers. It had raised $204 million in funding and was acquired in 2016 by GE for $915 million. In December last year, GE sold a majority stake in ServiceMax to Silver Lake Partners for an undisclosed sum.

By following a platform-as-a-service strategy, Salesforce has helped developers and entrepreneurs build on ideas to create sustainable high value businesses. What other SaaS products are you aware of that have seen such significant traction? What other companies do you think Salesforce should acquire to drive this PaaS growth?

Its stock is trading at $158.50 with a market capitalization of $121.2 billion. It had touched a record high of $166.15 earlier last week in anticipation of the results. The stock has climbed from the 52-week low of $111.34 that it was trading at nearly a year ago.

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