Salesforce Enjoys Record Quarter, Plots Growth With New AWS Relationship, Improved Cloud Business

Marc Benioff

Software developer Salesforce is on track to become one of the few software companies to break the $10 billion revenue mark after enjoying its best-ever first fiscal quarter, company officials told financial analysts Wednesday.

Strong execution across all elements of the business combined with a strong focus on the cloud also gave the San Francisco-based customer relationship management specialist a reason to increase its full fiscal year 2017 guidance by $80 million, according to the company.

Salesforce said it expects future growth to come not only from a cloud presence it says is unmatched by its largest rivals, but also from a new relationship with Amazon Web Services.

[Related: Salesforce Still 'In Degraded State' After One-Day Outage]

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Salesforce reported revenue for its first fiscal quarter of 2017, ended April 30, of $1.92 billion, up 27 percent over the first fiscal quarter of 2016. That included subscription and support revenue of $1.78 billion, up 26 percent over the previous year's first quarter, and professional services and other revenue of $141 million, up 33 percent year over year.

Wall Street apparently liked what it heard from Salesforce: Before the first fiscal quarter results were posted, Salesforce shares rose 1.7 percent, to $77.87, by the close of the trading day. In after-hours trading, Salesforce share prices were up more than 6 percent, to more than $82.

Marc Benioff, Salesforce chairman and CEO, told analysts during the company's first fiscal quarter 2017 conference call Wednesday that his company is exploring ways to move to the market aggressively with AWS. The company has already moved its Heroku app-development platform to AWS, and is developing an Internet of Things platform on that cloud as well.

"When you look at Amazon today, there is no public cloud that is more sophisticated or [has] done more for customers," he said.

More news on Salesforce's growing relationship with AWS will be provided at the company's upcoming Dreamforce conference, Benioff said.

Benioff said Salesforce is still on track to quickly realize its dream to break the $10 billion revenue mark, and is doing so well in large part because of its execution on the cloud compared with that of either of its top two competitors, Oracle and SAP.

"We're in the midst of a huge generational shift [to] people who want it now, want it easy," he said. "And they're increasingly mobile."

Revenue for the Salesforce Cloud grew 15 percent over last year's same quarter to reach $725 million, the company reported. Its Service Cloud revenue grew 32 percent, to $540 million, its App Cloud and other revenue by 45 percent, to $326 million, and its Marketing Cloud by 29 percent, to $185 million, Salesforce said.

"It's the best Q-1 we've ever seen," Benioff said.

The Americas remained by far the company's biggest market, with revenue of $1.4 billion, up 27 percent over last year's quarter.

Salesforce reported GAAP earnings of $52 million, or 6 cents per share, up from 1 cent per share in the first fiscal quarter of 2016. On a non-GAAP basis, the company reported earnings per share of 24 cents, up from last year's quarter's 16 cents per share.

This quarter was the eighth consecutive quarter of margin improvement, and the first to produce $1 billion in non-GAAP cash flow, said Salesforce CFO Mark Hawkins.

That led Hawkins to increase guidance for all of fiscal 2017 to $8.2 billion, up from the original guidance of $8.12 billion. That compares with fiscal 2016 revenue of $6.67 billion.

In the first fiscal quarter, Salesforce recorded its largest number of transactions ever, and closed three nine-figure deals, Benioff said.

During the question-and-answer period, Benioff said Salesforce has remained committed to growing its Salesforce Cloud even as its other Cloud businesses have seen greater growth. The company has added its new Lightning platform with an emphasis on mobile applications, and created several other new capabilities.

"These things, and others, have let us reboot the Sales Cloud, re-energize the Sales Cloud," he said.

That has made the Sales Cloud one of the largest software revenue generators in the industry, not just for CRM, he said.

Salesforce and its executive team did not address last week's Salesforce cloud outage, nor did any analyst ask about the outage during the question-and-answer period.

With the company's $10 billion revenue goal in sight, Benioff responded to an analyst's question about the future goal by noting that only two other software companies have reached that mark.

"We are already looking forward to blasting through that number and getting to the next level," he said. "And Salesforce shows no sign of slowing down."

That next level will be reached on the back of a new push toward the use of artificial intelligence, including machine learning, deep learning and machine intelligence, Benioff said.

Benioff also said Salesforce is seeding future expansion in part with the new cloud relationship with AWS.