Salesforce Banking on Rapid Growth in Revenue

Salesforce Banking on Rapid Growth in Revenue has established a goal for itself; doubling the annual revenue it earns. However, there are big obstacles faced by the business-software company in making the leap it wants. In the next fiscal year, the company is expecting to make $10 billion and it wants to jump to $20 billion, but there is a huge problem it has to overcome first; intensifying competition. Currently, the San Francisco-based firm has the biggest market share for software aimed at helping salespeople in tracking their interactions with prospects and customers. But, companies such as Oracle Corp., SAP SE and Microsoft Corp. are encroaching on its market.

The skepticism of analysts about the company’s ability to maintain its rapid growth rate in the face of steady and overall expansion of the market is also adding to the pressure. For the last five years, Salesforce has been posting losses. Analysts have said that investors may start demanding that the company turn a profit if there is a slowdown in revenue growth. Nonetheless, Marc Benioff, the Chief Executive of Salesforce, is not fazed at all by the looming threats when he disclosed their goal to reach $20 billion in a conference all in November. But, he didn’t tell a time frame for this goal.

As online interaction with customers’ increases, it is expected that the market for marketing, sales and customer-service software and related tools will grow between 2015 and 2020 at a compound annual rate of 14%. Hence, it is expected to reach $51.55 billion as per estimates. In October, Mark Hawkins, the Chief Financial Officer of the company, said that they are aiming to post annual revenue growth between 20% and 30%. In the fiscal year 2018, the annual revenue is expected to be $10 billion, but at the rate outlined, Salesforce will reach its target of $20 billion between 2021 and 2022.

Analysts have stated that it will be difficult for the company to maintain its growth. They added that 20% seemed reasonable, but 30% was taking it a bit too far. In fiscal year 2016, the revenue growth of the company slowed down to 24% even though it had been 37% in 2012. In the most recent quarter, the expansion of Salesforce in its core market, which deals with salespeople keeping track of their interactions with prospects and customers, was 13%. The company is moving slowly towards profitability after making consecutive annual losses.

In fiscal 2016, it was able to narrow its net loss significantly from $262.69 million to $47.43 million. In 2017, the company is expecting to rake in a profit of 24 cents to 25 cents per share, which would provide it with a net margin of 2%. Considerable marketing and sales expenses are still a challenge. In the most recent quarter, these expenses were about 47% of the total revenue, but this is a 1% reduction in the same period a year ago. So far, investors have been patient and are forgoing profits, but if growth continues to go down, their patience will run out.

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