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Eight eye-openers from Salesforce.com's annual report

Chris Kanaracus | March 10, 2014
Last week, Salesforce.com reported its fourth-quarter and year-end fiscal 2014 results, announcing a major bump in revenue and even raising its guidance significantly. But the fast-growing cloud vendor is also continuing to post significant losses as it spends big on sales, marketing and acquisitions.

Last week, Salesforce.com reported its fourth-quarter and year-end fiscal 2014 results, announcing a major bump in revenue and even raising its guidance significantly. But the fast-growing cloud vendor is also continuing to post significant losses as it spends big on sales, marketing and acquisitions.

Salesforce.com's annual report, which was released this week, paints a fuller picture of the vendor's opportunities and challenges, while also revealing a series of eyebrow-raising facts. Here's a look at some of the highlights.

Core CRM is still king: While Salesforce.com has spent the past couple of years hyping its marketing automation capabilities, social analytics and most recently the new Salesforce1 development platform, the CRM (customer relationship management) software it was founded on remains the most lucrative component of its business. In fact, "we derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing application service, and we expect this will continue for the foreseeable future," Salesforce.com said.

Cutting down on customer churn: Since SaaS (software as a service) vendors such as Salesforce.com sell their products via subscription, it's crucial for them to get as many existing customers as possible to renew, given the substantial cost of acquiring new ones.

Salesforce.com is making progress on its customer attrition rate, which is also referred to as "churn" in the industry. As of Jan. 31, its attrition rates were in "the high single-digit percentage range," compared to a "low double-digit percent range" one year earlier, according to the report. Attrition rates, however, are expected to "decline slowly over time," Salesforce.com added. However, the company does not calculate the attrition rate for ExactTarget, the marketing automation vendor it acquired last year.

Goodwill hunting: Salesforce.com had some $3.5 billion in goodwill on its books as of Jan. 31. Goodwill refers to the amount of money a company pays for an acquisition over and above its book value, representing intangible assets such as a positive brand image. Goodwill accounted for $1.85 billion of the roughly $2.6 billion Salesforce.com paid for ExactTarget.

If an acquisition doesn't end up generating the value expected, companies are often compelled to write down goodwill. Hewlett-Packard took an $8.8 billion "impairment of goodwill" write-down in November 2012, attributing the charge partly to alleged accounting improprieties at Autonomy prior to HP's acquisition of the infrastructure software vendor.

Salesforce.com didn't write down any goodwill during its fiscal 2014, 2013 or 2012, according to the annual report. But goodwill now represents about 38 percent of Salesforce.com's total assets of $9.15 billion.

Mega-marketing: Much is made of Salesforce.com's rapid revenue growth but some analysts point out the company's lack of profit. In the fourth quarter of its fiscal 2014, the company posted a $117 million loss, even as revenue shot up 37 percent to $1.15 billion.

 

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