Takes a Loss, Shares Rise

The online CRM vendor reports increased revenue and a jump in number of subscribers, leading to a rise in its shares' value despite the company's net loss in Q2.

Online CRM software specialist reported Aug. 16 that it increased its year-over-year revenue by 64 percent to $118 million, but it still recorded a net loss of $145,000—less than expected—in its fiscal second-quarter financial report.

Nonethless, the companys shares rose in value by as much as 13 percent as the company added more subscribers than analysts had estimated.

Chairman and CEO Marc Benioff said in a separate announcement Aug. 16 that recently hit the 501,000-subscriber mark, an increase of 57,000 during Q2—a 13 percent improvement.

The San Francisco-based company serves about 24,800 businesses with its Web-based turnkey CRM (customer relationship management) software.

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"Over the last six-month period, [] sales have grown 65 percent, while selling, general, and administrative expenses [SG&A] costs rose only 52 percent; thats good," wrote analyst Rich Smith of The Motley Fool, based in Alexandria, Va. "The problem is that the cost of providing services has doubled during that time, and thats depressing gross margins a bit.

"Fortunately for Salesforce, its cost of sales is just a fraction of its SG&A costs. So long as the firm continues to exercise restraint with operating costs, the rapid rise in cost of sales shouldnt prevent it from expanding its net profit margin and dropping ever more pennies, from each dollar of sales, to the bottom line."

Subscription and support revenues were $106.7 million, an increase of 63 percent on a year-over-year basis and an increase of 13 percent on a quarter-to-quarter basis, Benioff said. Professional services and other revenues were $11.5 million, an increase of 82 percent on a year-over-year basis and an increase of 13 percent on a quarter-to-quarter basis.

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Benioff, in a statement issued to media members earlier in the day, touted the customer and revenue numbers as "incredible milestones that only a few software companies achieve."

"In fact, only about 40 software companies are at the $500 million mark, and only 27 have gotten to over $1 billion," Benioff said.

"This performance makes us the fastest-growing software company of our size anywhere in the world today. Why? It is because customers like Cisco, Merrill Lynch, Sprint, Nokia, ADP and almost 25,000 others have succeeded with where they had failed before with the traditional client/server enterprise software model. It is the end of software," he said.

The company also reported that it has reached the 1,000 mark in number of nonprofit organizations that utilize its on-demand fund-raising and administrative services. also adjusted its Q3 revenue projections upward slightly. Benioff said third-quarter revenue is projected to be in the range of $128 million, up from $126 million.

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Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...