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Can Salesforce Sustain Its Growth?

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Revenue and earnings beat in fiscal 3Q17

Salesforce (CRM) reported a 25.3% year-over-year (or YoY) growth in revenue to $2.14 billion for the September quarter, which is its fiscal 3Q17, handily beating the consensus estimate that called for revenue of $2.12 billion. Adjusted EPS (earnings per share) for the quarter came in at $0.24, ahead of the consensus of $0.21.

Without excluding certain items in its bottom line calculation, Salesforce saw a net loss of $37.3 million, equivalent to its EPS loss of $0.05 for the latest quarter. The loss widened from $25.2 million, or $0.04 per share, a year earlier.

With that, it appears that Salesforce’s revenue growth is coming at a serious cost to the bottom line. So, is Salesforce’s top line growth sustainable?

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Battling stiff competition

Salesforce offers enterprises a cheaper way of connecting with and pitching to customers. However, its rivals have mastered this business strategy and are threatening to wreak havoc.

For instance, Microsoft (MSFT) and Oracle (ORCL) have recently become aggressive in marketing their cloud alternatives to Salesforce. This is causing Salesforce to spend huge amounts of money on acquisitions, partly to grow revenue and mainly to stave off competition. Both goals are eating into the company’s bottom line.

Even in its acquisition, competitors are not allowing Salesforce enough breathing space. Microsoft edged out Salesforce in the race to acquire LinkedIn (LNKD), and Salesforce later departed from a path that would have seen it acquire Twitter (TWTR).

However, Salesforce seems to be taking the competitive pressure in stride. The company has continued to grow its revenue at a double-digit rate despite stiff competition.

Moreover, Salesforce said its deferred revenue rose 23% to $3.5 billion in fiscal 3Q17, and the company has provided an upbeat revenue outlook for the current quarter. It is expecting its current quarter revenue to range from $2.27 billion–$2.28 billion, while the consensus estimate calls for revenue of $2.24 billion.

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