Salesforce.com reported mixed third-quarter fiscal 2012 results Thursday that showed excellent top-line expansion but very weak levels of profitability. We are maintaining our $120 fair value estimate.
The firm achieved record quarterly revenue in the period, up 36% on a year-over-year basis. Deferred revenue growth, or sales to be recognized in the future, was a bit lower than top-line expansion in the period and came in at 32%. This suggests that revenue growth in the future may slow a bit from the current pace. Salesforce.com’s subscription and support revenues jumped 36%, while professional services and other revenues advanced 34%.
On the bottom line, the results were less than impressive. On a GAAP basis, Salesforce.com registered a third-quarter net loss of $0.03 for the period. On a non-GAAP basis, net earnings came in at $0.34. The market continues to place an elevated earnings multiple on the firm’s meager earnings stream in setting its valuation. Cash from operations, however, jumped 74% on a year-over-year basis, which provides the basis for our estimate of Salesforce.com’s intrinsic value (we use a DCF process to arrive at an intrinsic value for all companies we cover).
Looking ahead, the firm initiated guidance for the fourth quarter, with revenue expected to come in as much as $624 million in the period, above expectations. Salesforce.com expects to report a GAAP loss again, though on a non-GAAP basis, it indicated earnings could reach as high as $0.40 in its fiscal fourth quarter, matching expectations. Management also initiated guidance for fiscal 2013, with revenue expected to reach $2.92 billion at the high end of its range, topping estimates. We’re not expecting much on the bottom line for Salesforce.com for fiscal 2013, and management withheld bottom-line guidance for the year, a move we view negatively.
All-in, we continue to focus on the earnings and cash-flow stream at Salesforce.com (as opposed to profitless top-line expansion). Oracle’s (ORCL) move into the space with the acquisition of RightNow has also dampened our enthusiasm on the stock. We demand a large margin of safety before considering this high-flyer and would not touch Salesforce.com’s equity until it fell below $80 per share, the lower end of our fair value range, on improving technicals.