August 22, 2017 / 8:45 PM / in a year

UPDATE profit beats estimates, shares dip after hours

(Adds comments from CEO Marc Benioff)

By Salvador Rodriguez

Aug 22 (Reuters) - Inc posted a quarterly profit that beat analysts' estimates as it invested heavily to fend off competition in the cloud-based software sector.

Shares of the company slipped 1 percent after the bell on Tuesday after closing at $92.95 on the New York Stock Exchange. Despite strong growth in revenue, the stock shares fell slightly as some investors expected even greater performance, analysts said.

The San Francisco-based tech giant's net income grew to $241 million, or 33 cents per share, from $170 million, or 24 cents per share, a year earlier.

The company also reported deferred revenue - a key metric for the subscription-based software business - of $4.82 billion for the quarter, up 26 percent on the year, beating expected revenue of $4.69 billion, according to financial and data analytics firm FactSet.

Revenue from Sales Cloud, the company's flagship product, rose 17.4 percent to $886.4 million, while total revenue jumped 25.8 percent to $2.6 billion. Analysts on average had expected a profit of 32 cents and revenue of $2.51 billion, according to Thomson Reuters I/B/E/S.

"Salesforce's growth is impressive," said Joe Tenebruso, analyst for Motley Fool. "There aren't many businesses that size that are growing so rapidly."

Reflecting the strong growth, Salesforce also raised its revenue guidance for the remainder of fiscal year 2018 by $100 million.

The cloud-based software maker has boosted spending on research and development as well as marketing and sales as it faces intense competition from companies including Oracle Corp and Microsoft Corp.

"It's going to be a tough battle in the cloud," said Tom Taulli, analyst. "Salesforce has done a great job so far, but the competition has gotten better."

Spending on marketing and sales for the period came in at $1.2 billion, up nearly 26 percent from last year, while research spending came in at $386 million, up 33 percent from last year.

"There's a question of where is that research and development going?" said Andrew Bartels, research analyst with Forrester Research Inc. "Is it going to create actual value? That remains to be determined."

On a call with analysts, Chief Executive Marc Benioff highlighted the company's investments in Einstein, its artificial intelligence technology, saying he expects the technology to be a big part of Salesforce's future growth.

“You see that the cloud was a huge driver of growth, mobile was a huge driver of growth, and now you’ve got AI," Benioff said. (Reporting by Salvador Rodriguez in San Francisco and Laharee Chatterjee in Bengaluru; editing by G Crosse and Cynthia Osterman)

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