Salesforce Rises as New Customers Spur Sales, Profit Growth

May 20, 2011, 10:02 AM EDT By Aaron Ricadela

(Updates with opening shares in fifth paragraph.)

May 20 (Bloomberg) -- Salesforce.com Inc., the largest supplier of online customer-management software, rose as much as 8.1 percent after the company forecast fiscal second-quarter sales and profit that topped estimates.

Excluding some costs, earnings will be 29 cents to 30 cents a share, with sales of $526 million to $528 million, San Francisco-based Salesforce said yesterday in a statement. Analysts in a Bloomberg survey had estimated profit of 27 cents and revenue of $505.2 million for the period ending in July.

Salesforce, which sells cloud-computing applications that companies rent over the Web rather than install on their own computers, gained 5,400 customers in the quarter, for a total of 97,700. The company is benefiting from clients hiring more sales, marketing and customer-service workers. It’s also getting a boost from newer products, such as the Chatter social network for businesses and the Service Cloud customer-support software.

“They’ve really accelerated the product line,” said Brad Whitt, an analyst with Gleacher & Co. in Dallas. “You combine that with the general growth in cloud computing and you have a perfect environment.”

Salesforce rose $9.95, or 7.3 percent, to $145.76 at 9:34 a.m. in New York Stock Exchange composite trading, after touching $11.01. The shares had climbed 66 percent in the past year before today.

‘Crazy’ Growth

Billings, an indicator of future sales, rose 44 percent from a year earlier, compared with 36 percent in the fourth quarter, said Whitt, who recommends buying the shares. That allayed investors’ concerns that growth would slow, he said.

“The bears were looking for a deceleration and we got the exact opposite,” Whitt said. “We got another quarter of acceleration, which is crazy.”

Chief Executive Officer Marc Benioff said customers are buying more software as they put the economic slump in the rear- view mirror.

“What I see in the enterprise buying environment is the recession is behind these customers,” he said during a conference call with analysts yesterday. “We see a big buying environment out there.”

First-quarter net income fell to $530,000, or break-even on a per-share basis, from $17.7 million, or 13 cents, a year earlier. Higher spending on research, marketing and overhead expenses ate into profit. Excluding some items, earnings were 28 cents a share, beating the average analyst projection by 1 cent.

Hiring, Acquisitions

“The company continues its pattern of spending on growth,” Walter Pritchard, an analyst at Citigroup Inc. in San Francisco, said in a research note after the earnings report. That’s not surprising given the hiring of sales staff and acquisitions, said Pritchard, who has a hold rating on Salesforce shares.

Revenue rose 34 percent to $504.4 million last quarter. Analysts had expected $482.3 million on average.

On March 30, Salesforce agreed to buy Radian6 Technologies Inc. for about $340 million, adding software that tracks what’s being said about companies on the Web. Salesforce said the acquisition will boost its fiscal 2012 revenue by about $45 million to $50 million and reduce earnings per share, excluding some items, by about 11 cents.

--Editors: Lisa Rapaport, Stephen West

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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