Closing in on $10 billion run rate
Salesforce have released their fourth quarter and annual results. Revenues for this quarter were $2.29 billion, up 27% year over year and up 28% in constant currency. The full year revenues were $8.39 billion, up 26% year over year. This led to Benioff commented on the next fiscal year revenues saying “for this fiscal year, we are going to more than $10 billion in revenue.”
Whether they will achieve this ahead of the Oracle cloud revenues we have yet to see but Salesforce will almost certainly hit that mark in one years time. Operating cashflow for the year was $2.16 billion and fourth quarter cash flow $706 million, up 29% year on year. The question is what they will do with it. There were more than a dozen acquisitions during 2016 including Demandware, Krux and Quip. There was no mention of further acquisitions during the analyst call. The reticence was probably due to the leak earlier this year about possible Salesforce targets.
Mark Hawkins summed up the stunning progress that Salesforce has made by commenting: “In addition to our outstanding top-line results, we also delivered our first ever $2 billion year of operating cash flow. To put these results in perspective, over the last three years, we have doubled our revenue, nearly tripled our free cash flow and improved non-GAAP operating margin by more than 400 basis points.”
Sticking it to Oracle
Benioff could not resist the opportunity to show off the massive revenues that Sales Cloud is generating. Saying that it is more revenues than Workday or any other cloud vendor.
“Better than Oracle’s entire cloud business” – Marc Benioff
These were the words Marc Benioff used to describe just the Salesforce Sales Cloud revenues during the quarterly results call. This not the only statement that was worthy of highlight as Salesforce pulled off another quarter of consistent growth.
Analysts were surprised that the growth of Sales Cloud continues, but even Health Cloud, the newest entrant to the Salesforce platform is performing well.
Health cloud blasting off
It is not just Sales cloud that is doing well. Financial Service Cloud has had success with U.S. Bank, SunTrust, TD Bank. However, it is Health Cloud that is really performing well, despite only going GA a year ago. In the last quarter Salesforce expanded relationships with Anthem, athenahealth and one of the largest healthcare companies in the US, Humana. Health cloud was also boosted by several new features announced at the recent HIMSS conference.
Commerce cloud also saw big wins with Levi’s, The Gap and YETI assisting the 26% growth in constant currency. This is ahead of many competitor growth metrics and shows the strength that Salesforce has developed in depth.
Outside the US growth in both Asia and Europe is also a steady 29%. Major brands are deepening their investment in Salesforce including Shell, Michelin, Maersk and Banco Santander
What is missing
The piece that is missing is a comprehensive ERP solution that will integrate with all the other clouds. Whether Benioff will spend his war chest and bring FinancialForce in house or look elsewhere is one for observers to ponder. Salesforce are slowly growing out every facet of software that a business needs to operate and finances is one of the obvious gaps that is left.
With FinancialForce under the new leadership of Tod Nielsen and looking to accelerate growth it might become strong enough in its own right for Benioff to consider them an option. There are others in the Salesforce family, but none with the same depth of product.
Einstein
Benioff also signposted a raft of announcement due out on March 7th. Benioff is investing heavily in Einstein with the recent announcement around the integration of Einstein into Service Cloud as one example. The announcement on March 7th promises more information around what the Salesforce developers have worked on for Einstein. It might become a signficant milestone for AI and machine learning in business software.
Conclusion
These are excellent results for Salesforce with no real downsides. Both its product lines and regional sales are progressing evenly. While Quip barely registered a mention its integration in Salesforce is deepening which could see it being one of the innovative weapons that Benioff launches next week.
Whether Salesforce will win the race to $10 billion cloud revenues is not yet known. The last lap has begun though and Salesforce are looking very strong going into their first quarter.
(Marc Benioff quotes sourced from SeekingAlpha.com)
The big challenge I would see with a potential acquisition of FinancialForce, is that it would only cater for the small business Salesforce customers. It cannot scale to support the enterprise customers listed in this article and which Salesforce likes to boast about.
This is mostly down to the fact that the force.com platform was not designed for massively transactional ERP systems. FinancialForce is known to have volume/performance limitations which are imposed by the force.com platform, so to me this is a non-starter for Salesforce. In fact if you look at all the Accounting/ERP platforms built on Salesforce, they are all targeted at small to mid-size businesses.
If they acquired FinancialForce, they would either have to do a major platform re-design/re-architecture to make it suitable for enterprise volumes, or they would only be able to sell it to smaller customers. I’m not convinced that would make sense for Salesforce’s strategy but who knows, maybe they will get greedy chasing revenue growth.
Also if we look to the recent acquisition of DemandWare for clues on Salesforce’s strategy, that is another enterprise class platform.