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How Did Demandware Enable Salesforce’s Entry into e-Commerce?

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Demandware acquisition bridges e-commerce product gap

Earlier in this series, we discussed how Salesforce’s (CRM) Demandware acquisition could impact its top-line and bottom-line growth in fiscal 2017. Demandware offers cloud software for building e-commerce websites. Its acquisition marked Salesforce’s entry into the e-commerce space. Demandware’s customers include prestigious retail and fashion names such as Adidas (ADDYY), L’Oréal (LRLCY), Marks and Spencer, and Uggs. Salesforce plans to create a new division, Commerce Cloud, to capture the “multi-billion dollar digital commerce market.”

Salesforce chief operating officer Keith Block stated that “it was becoming increasingly obvious that Demandware’s name was coming up more and more. Customers have been asking for this.” He added that “we believe there are a number of synergies in retail and customer product goods.”

Benioff shared that there was significant overlap in Demandware and Salesforce customers. With the companies’ combination, customers can use Salesforce to sell software to customers through Demandware and track customer data through Salesforce’s CRM (customer relationship management) software.

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Salesforce: $10 billion in revenue by 2018

With Demandware, Salesforce now expects to complete fiscal 2017 with revenues and non-GAAP (generally accepted accounting principles) EPS (earnings per share) in the range of $8.26 billion–$8.32 billion and $0.93–$0.95, respectively. In fiscal 1Q17, Salesforce set revenue and EPS guidance at $8.16 billion–$8.2 billion and $0.24– $0.25, respectively, for fiscal 2017.

Unlike peers IBM (IBM) and Oracle (ORCL), which are encountering difficulties growing their revenues, Salesforce continues to report double-digit growth with each passing quarter. Salesforce, which generates more than 90% of its revenues from subscription and support revenues, dominates the PaaS (platform-as-a-service) and SaaS (software-as-a-service) spaces. As a result, Salesforce will likely benefit a great deal from the growing cloud and SaaS adoption. Consistently revising its guidance upwards, the company is well on its way to achieving the $10 billion revenue milestone by fiscal 2018.

Investors wanting exposure to Salesforce could consider investing in the Technology Select Sector SPDR ETF (XLK). XLK has an exposure of ~38% to application software. It invests ~1.1% of its holdings in Salesforce.

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