Salesforce.com Inc. calmed investor concerns about slowing growth with solid fiscal first-quarter financial performance that eclipsed Wall Street estimates for both revenue and earnings.

The company slightly lowered second-quarter earnings estimates but raised its full-year outlook to earnings of between $2.88 and $2.90 on revenue of between $16.1 billion and $16.25 billion for the year. That’s ahead of consensus estimates of $2.67 in full-year earnings on $16.14 billion in revenue. Executives said the company is on track to meet its goal of more than $26 billion in annual revenues by 2020.

“We’ve never been better positioned for the future,” said Co-Chief Executive Keith Block.

Quarterly revenue of $3.74 billion was up 26% on a constant currency basis over the same period last year. Subscription revenues increased 24%. Operating cash flow of nearly $2 billion was up 34% and the company finished the quarter with cash and marketable securities of $6.38 billion, putting it in a good position to make further acquisitions. Shares rose nearly 3% in after-hours trading.

Calming concerns

The results should reassure investors who questioned whether the company’s growth rate was slowing after it issued weaker-than-expected guidance for its fiscal fourth quarter three months ago. Recent earnings disappointments from companies like Alphabet Inc., Nutanix Inc., Box Inc. and NetApp Inc. have raised questions about whether the enterprise technology market is entering a trough, but those concerns have been somewhat offset by strong results from VMware Inc., SAP SE and Dropbox Inc.

“Beating expectations was certainly positive, but raising guidance was likely a relief for many observers,” said Charles King, principal analyst at Pund-IT Inc. “It suggests that Salesforce is seeing evidence that the second half of the year will be less bumpy than most people have feared.”

Although Salesforce shouldn’t be considered a bellwether for the entire software as a service industry, “the company’s position in Silicon Valley and its approach to dealing with the fallout from President Trump’s tariffs against China and Mexico make Salesforce a power to watch,” King said. Co-CEO Marc Benioff said global currency factors created a $200 million headwind on annual revenues, but the company expects to beat estimates anyway.

The customer relationship management giant marked a milestone with quarterly revenue for its Service Cloud customer service software and support application topping $1 billion, making it the second application to exceed that mark behind the company’s flagship Sales Cloud, which saw revenue growth of 11% to $1.073 billion. That puts Sales Cloud just $53 million ahead of service cloud in quarterly sales. Revenue for the company’s platform-as-a-service jumped 50%, to $842 million, and Marketing and Commerce Cloud rose 33%, to $561 million.

“Service Cloud breaking $1 billion in a quarter for the first time shows the strength of the Salesforce business and the desire of enterprises to have one integrated CRM offering,” said Constellation Research Inc. analyst Holger Mueller.

Brand value

Constellation Research Founder Ray Wang said that’s a measure of the confidence customers have in the Salesforce.com brand. “It connotes innovation and technology for good,” he said, referring to the firm’s many philanthropic activities. Microsoft Corp. CEO Satya Nadella “copied this strategy and the impact is huge.”

Speaking to analysts on the company’s conference call, executives attributed much of the recent momentum in its secondary businesses to MuleSoft Inc., the application integration vendor it purchased last year for $6.5 billion.

“MuleSoft has enabled us to come to customers and say everything you have will be part of Customer 360,” said Mark Hawkins, president and chief financial officer, referring to a shorthand term for an integrated customer view. “It increases the clock speed of digital transformation.”

Although MuleSoft contributed only $170 million in sales in the quarter, its strategic value as an integration point between Salesforce’s cloud products and customers’ other applications has made it a key sales driver, Hawkins said. “Customers want us to take all their customer-focused activities and bring them together using advanced technologies like blockchain, artificial intelligence, vision and voice, put it all on a phone, deliver it as a programmatic capability and wrap it all together and call it customer 360,” he said.

All of which means the company’s momentum is probably sustainable for the foreseeable future, Mueller said. “Enterprises are moving to the cloud and picking vendors that align with their overall strategy based on platform stability and strength,” he said.

Image: Salesforce.com