Inorganic Growth, Rising Costs Named As Factors In Salesforce Quarterly Disappointment

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Costs of recent acquisitions as well as risings costs combined for a disappointing quarterly earnings report.

Salesforce has struggled to earn consistent profits. Its stock has underperformed the S&P 500 year to date but it still trades at 85 times expected earnings, compared to an average of 17 for its peers.

During the quarter ending in April, Salesforce’s subscription and support costs rose faster than its revenue, pushing its bottom line further into the red.

Moving beyond “organic” expansion of the company, Salesforce.com made a series of major acquisitions last year that included a $745 million deal for Buddy Media, a social media marketing software company.

“They’re moving from organic to inorganic growth. And inorganic is very expensive,” said Bernstein analyst Mark Moerdler. “They’re building out lots of sales organizations in lots of different areas.”

Inorganic growth refers to expanding through acquisitions, in contrast to growth of existing business.

Salesforce.com had a first-quarter net loss of $67.7 million or 12 cents a share, compared to a net loss of $19.5 million, or 4 cents a share, in the same quarter last year.

Salesforce said on Thursday its non-GAAP diluted earnings per share in the first quarter were 10 cents, in line with expectations.

It said it expects adjusted earnings in the current quarter of 11 or 12 cents, also in line with expectations.

“The guidance is just in line and we’re used to seeing these guys raise,” said Pacific Crest Securities analyst Brendan Barnicle. “We see this as a buying opportunity.”

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About Wayne Schulz

Wayne Schulz is a consultant who writes about the ERP industry and technology related news.