Highlights From the Salesforce Q3 2017 Report

Markets Motley Fool

When enterprise software company Salesforce (NYSE: CRM) reported results for the quarter that ended Oct. 31, 2017, it bested guidance given a few months prior and raised its outlook for the remainder of the year. The company has been growing at breakneck speed and is showing no signs of letting up.

Continue Reading Below

The top line keeps growing

Salesforce's revenue has been growing by double digits for years, and that pace has continued unabated in 2017. Third-quarter revenue came in at $2.68 billion, a 25% increase over the same period a year ago. Through three quarters of this fiscal year, revenue is up 25%.

Metric

2013

2014

2015

2016

2017 Year-to-Date

Revenue

$4.07 billion

$5.37 billion

$6.67 billion

$8.39 billion

$7.63 billion

% Increase Over Year-Ago Period

33%

32%

24%

26%

25%

Management raised its full-year outlook on revenue to $10.43 billion o $10.44 billion, and thinks it can make $12.45 billion to $12.50 billion next year. That would represent another 20% increase in the top line. Speaking to Salesforce's ambitious goals, CEO Marc Benioff said the company is well on track to reaching $20 billion in total sales by the end of 2021. That would make the company the fastest to reach that milestone for any enterprise software company in history.

An easy profit beat

Continue Reading Below

During the second-quarter report late in the summer, management gave EPS guidance for the third quarter of $0.04 to $0.05. The final report showed a $0.07-per-share profit, easily beating expectations and setting the company up for full-year EPS of $0.12 to $0.13.

That falls well short of the $0.26 earnings per share last year, but much of that has to do with the company investing to keep growing the top line. Adjusted earnings per share, which exclude things like amortization of intangible assets and stock-based compensation, is actually on pace to hit $1.32 to $1.33. That compares to $1.01 per share during last fiscal year.

To emphasize that point further, free cash flow continues to rise even while earnings decline. Free cash flow is money left over after basic operating expenses are paid for and can be a better measure of a company's true profitability.

And for its next trick...

Salesforce thinks it has plenty of room to keep going. During its investor presentation at the company's annual Dreamforce event a few weeks ago, management said its total addressable market was currently $72 billion.

In four years, the company sees that total addressable market growing to $120 billion. Using its stated goal to reach $20 billion in revenue at that time, that's still only about 17% of the total market for its suite of cloud-based software. Of course there are lots of variables involved with those assumptions that could change the ultimate picture, but the point is that Salesforce has plenty of space to expand.

One of the ways the company plans to grow is by integrating its artificial intelligence capabilities, dubbed Einstein, into its existing sales, marketing, and service platforms. Its AI capabilities appeal especially to big companies, and Salesforce has already had early success in inking deals.

All things considered, the third-quarter report was a successful one for investors as Salesforce continues its march toward the $20 billion in revenue goal.

10 stocks we like better than Salesforce.com
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Salesforce.com wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.