Salesforce.com Weathers Economic Headwinds In Q4

Software-as-a-Service application vendor Salesforce.com is weathering the crumbling economy so far, but the company's customer attrition rate could inch up as the recession drags on.

While customer attrition for Salesforce's on-demand CRM software and Force.com development platform was less than 1 percent in its just-completed fourth quarter, company executives said attrition could increase as some customers cut costs or even go out of business.

"We're not blind to the economic environment and we could see additional upticks" in the attrition rate, CEO Marc Benioff said on a conference call with financial analysts Wednesday.

Salesforce reported that sales grew 34 percent year over year to $289.6 million in its fourth quarter ended Jan. 31, from $216.9 million in the year-ago quarter. Net income surged more than 86 percent to $13.8 million in the quarter from $7.4 million in the same quarter last year.

For all of fiscal 2009 (ended Jan. 31) the company reported sales of $1.08 billion, up 44 percent from $748.7 million for fiscal 2008. Earnings more than doubled to $43.4 million from $18.4 million in the previous year.

For the current quarter, Salesforce is projecting that sales will be in the range of $304 million to $305 million. For all of fiscal 2010 the company is forecasting sales between $1.30 billion and $1.33 billion.

The number of Salesforce's net paying customers increased approximately 3,600 during the quarter, bringing the company's total to around 55,400.

A major argument for SaaS applications, which customers pay for on a subscription basis, are more attractive in a down economy because they don't require the same up-front capital expenditures and ongoing maintenance fees as traditional software licenses do.

Benioff bragged about a number of customer wins he said Salesforce scored against rivals Microsoft, Oracle and SAP during the quarter. He said owners of Oracle's Siebel CRM applications were particularly eager to migrate to Salesforce. But analyst reports have said Salesforce is seeing increased competition from Oracle's recently released Oracle CRM Release 16.

"Customers are taking a hard look at the maintenance payments they are making to enterprise software companies," Benioff said. "In days like these when cash is king, liquidity is critical and credit is scarce, the predictable, flexible cost of cloud computing is overwhelmingly the right choice."

Earlier this month, SaaS application vendor and Salesforce competitor NetSuite reported that sales held up well in its fourth quarter ended Dec. 31, although executives said more customers wanted to pay on a monthly or quarterly basis, rather than pay for an annual subscription, in an effort to conserve cash.

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