Salesforce Hits Earnings, Seeks To Put Outages In Past

For the period ending Jan. 31, 2006, Salesforce.com reported record sales of $91.1 million, up 67 percent from $54.6 million in the year-ago period. It earned nearly $5.96 million, or 5 cents per share, up from $3.57 million last year. First Call consensus was that the company would hit sales of $91.8 million and EPS of 5 cents.

The company said it added 48,000 new subscribers during the quarter, compared to 40,000 in the first quarter, 41,000 in the second and 43,000 in the third. The company now claims 399,000 total subscribers worldwide.

But the quarter was also extremely tough for the software-as-a-service bellwether, which experienced several outages that left CRM customers stranded and angry.

CEO Marc Benioff attributed the problems to a new infrastructure that was swapped in during the period.

"When we implemented Mirrorforce technology in November, we felt very comfortable with our software, hardware and network architectures. As we deployed the data center technology we had some issues with regard to installation in early November, a service interruption in December that was a surprise to us and foreshadowed a very weak January for us in terms of reliability," he acknowledged on a conference call with analysts and reporters Wednesday.

He said that as a result, Salesforce.com will devote $1 million to $1.5 million to R&D quarterly to bolster the architecture that will, in theory, help Salesforce.com become what Benioff calls "the eBay of enterprise applications."

That comes atop the $50 million Salesforce.com already spent on its much touted "Mirrorforce" infrastructure upgrade, which introduced redundant data centers on both coasts. Salesforce.com can afford the investment. Thanks in large part to its lucrative IPO, the company has a stash of more than $200 million in cash and liquid assets.

Benioff insisted that Salesforce.com's struggles have not increased its attrition rate or posed competitive problems in the crowded hosted-applications market.

But there will be some tough times ahead, at least in terms of reporting numbers. For one thing, starting next quarter, Salesforce.com will have to start expensing stock options, an expense that CFO Steve Cakebread estimated will be about $45 million a year.

Investors were hoping for more bullish results. Shares of its stock fell 4.3 percent in after hours trading on Wednesday, to $32.92, its lowest point in more than a month.

For its first fiscal 2007 quarter, the company expects revenue in the range of $99 million to $101 million and non-GAAP earnings per share between 2 cents and 4 cents. For the full year, the company expects revenues to range between $470 million to $475 million, up slightly from previous guidance of $460 million to $465 million.

Given the stock-option issues, Cakebread repeatedly encouraged analysts to use non-GAAP numbers for comparison purposes.