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Cloud Stocks: Einstein and Open-Source Platform Lead the Charge for Salesforce

Posted on Friday, Jun 7th 2019

According to an IDC report published earlier this year, Salesforce.com (NYSE: CRM) remained the largest CRM services provider for the sixth year in a row and increased its 2018 market share by more percentage points than the rest of the top 15 CRM vendors combined. Here is the infographic from IDC that reveals Salesforce’s might.

Salesforce’s Financials

Salesforce’s first quarter revenues grew 24% over the year to $3.74 billion, above analyst projection of $3.6 billion. The impressive growth was attributed to a 11% gain on cloud-based revenues that came in at $1.1 billion for the quarter. Adjusted EPS grew 26% to $0.93, compared with the Street’s forecast of $0.63 for the quarter.

By segment, Subscription and Support revenues rose 24% to $3.5 billion. Professional Services and Other revenues climbed 23% to $241 million. Within the segments, Sales Cloud revenues grew 11% to $1.07 billion with revenues from Service Cloud growing 20% to $1.02 billion and revenues from Marketing & Commerce Cloud growing 33% to $561 million.

For the current quarter, Salesforce forecast revenues of $3.94-$3.95 billion with an adjusted EPS of $0.46-$0.47. The market was looking for revenues of $3.93 billion with an adjusted EPS of $0.63. Salesforce expects to end the current year with revenues of $16.1-$16.25 billion and an adjusted EPS of $2.88-$2.90. The Street had forecast revenues of $16.13 billion with an EPS of $2.64 for the year.

Salesforce’s Einstein Focus

During the quarter, Salesforce continued to focus on emerging technologies to drive growth. It expanded its new services on its AI offering Einstein, which will allow users, regardless of their technical skill, to build custom AI powered apps with just a few clicks. It expanded Einstein capabilities across its entire product line and made Einstein Voice and Einstein Vision capabilities available to every Salesforce app.

Earlier this month, it announced Einstein Analytics for Financial Services, a customizable analytics solution that provides AI-augmented business intelligence for wealth advisors, retail bankers, and managers. Einstein Analytics for Financial Services delivers a customized CRM experience for financial institutions providing them with access to AI-powered insights and recommendations tailored to their role and their customers. It integrates data from Financial Services Cloud and other data sources so that users can gain access to actionable insights and predictive guidance. The solution will offer pre-built industry-specific templates such as client financial goals, deposits and fees to enable front-line wealth advisors and retail bankers to begin using analytics immediately. It will also provide access to users to build custom analytics apps and connect to external data sources to get a full view of their book of business.

Salesforce.Org Acquisition

Salesforce’s earnings outlook for the current quarter has been impacted by the acquisition of its non-pofit arm Salesforce.org. Salesforce.org was a reseller for Salesforce software and services focused on the not-for-profit sector. Salesforce announced plans to acquire the entity for $300 million and integrate it with a larger, new nonprofit and education vertical. By integrating the two entities, Salesforce will continue to honor and grow its philanthropic offering. It will extend those services by continuing to provide free and highly discounted software to nonprofits and education institutions around the world and investing in local communities through employee volunteering and strategic grants.

But the acquisition has resulted in a one-time accounting charge of $200 million based on the accounting standard that addresses accounting for the settlement of preexisting relationships between an acquirer and a target company. The write-down pertains to the loss that Salesforce needs to recognize for its pre-existing contractual relationship such as the reseller agreement with Salesforce.org.

Meanwhile, Salesforce continues full speed ahead on its platform strategy. Earlier last month, it announced that it open sourced Lightning Web Components, its JavaScript framework that simplifies the ability to build apps on the Lightning Platform. Salesforce believes that by open-sourcing Lightning Web Components, it will be able to drive innovation on the platform and developer teams will be able to recruit from larger talent pools to code and iterate on apps. The open-source Lightning Web Components will allow developers to build applications on any platform, using the tools and open languages of their choice.

Salesforce is not new to the benefits of a well-defined platform strategy. Its platform has been used by companies like Veeva and Vlocity to build industry-focused applications. Salesforce should look at acquiring companies like Vlocity to add to its vertical-focused offerings – a move that could not only help drive revenues, but making meaningful inroads into key verticals.

Its stock is trading at $159.31 with a market capitalization of $123.4 billion. It had touched a record high of $167.57 earlier this April. The stock has climbed from the 52-week low of $113.60 that it had fallen to in December last year when most tech stocks had taken a beating.

Photo Credit: Open Grid Scheduler / Grid Engine /Flickr.com

This segment is a part in the series : Cloud Stocks


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