Salesforce Focusing On AI

According to MarketandMarkets, the artificial intelligence (AI) market is estimated to grow from $419.7 million in 2014 to $5.05 billion by 2020, growing at a CAGR of 53.65% from 2015 to 2020. The Media and Advertising sector is expected to drive the growth of AI during this period. IBM, Microsoft, and Google are key players in the market, and now Salesforce is trying to make inroads into it.

Salesforce’s Financials

For the first quarter of fiscal 2017, Salesforce’s revenue grew 27% over the year to $1.92 billion, above analyst estimate of $1.89 billion. Net income was $38.8 billion or $0.06 per share. Non GAAP EPS was $0.24, beating analyst forecast of $0.25.

By segment, revenues from Subscription and Support services grew 27% over the year to $1.78 billion. Professional services and other revenues were up 33% to $141 million.

Salesforce ended the quarter with deferred revenue of $4.01 billion, up 43%. Sales Cloud accelerated in the quarter with 15% growth. Service Cloud grew 32% and Marketing Cloud grew 29%. Apps Cloud and others grew 45%.

Salesforce raised its full year guidance. It now expects revenue of $8.16 billion to $8.20 billion and non GAAP EPS of $1.00 to $1.02 compared to its previous guidance of $8.08 billion-$8.12 billion revenue on earnings of $0.99-$1.01. The market was looking for revenues of $8.12 billion and an EPS of $1.01.

Salesforce expects to end the second quarter with revenue of $2.005 billion-$2.015 billion, an increase of 23% y-o-y and non GAAP EPS of $0.24-$0.25. The market had forecast the quarter’s revenues at $1.98 billion and an EPS of $0.25.

Salesforce’s Acquisitions

Salesforce’s recent acquisition spree is skewed towards AI. Early this month, it acquired Israel-based data automation startup Implisit Insights for “tens of millions”. Based on the data stored in its customer database, it helps sales people make faster and better decisions by predicting the best possible deals and identifying those most at risk of losing. It also recommends actions to improve the sales process. It has raised $3.3 million in funding.

In April, Salesforce acquired Palo Alto-based AI startup MetaMind for an undisclosed sum. Founded in July 2014, it has raised $8 million from investors including Khosla Ventures and Salesforce CEO Marc Beinoff. Salesforce plans to use its technology to further automate and personalize customer support, marketing automation, and many other business processes.

During the earnings call, Salesforce said that it wants to be an AI-first company. Early this year, it released SalesforceIQ Inbox that uses artificial intelligence and machine learning to work with users, emails, calendars, and CRM data to recommend actions to be more efficient in the sales, service, and marketing processes of their companies. This product was created using its $390 million acquisition of RelateIQ in 2014.

There is however stiff competition in the space with IBM, Google, and Microsoft trying to provide AI as various cloud services that can be used within apps.

Among other strategic highlights, Salesforce has entered into a strategic agreement with Amazon. It is now Amazon’s company-wide customer platform, and it also plans to use more Amazon services in the future. Salesforce has also landed deals with Uber and Samsung among others.

Its stock is currently trading at $83.59 with a market capitalization of about $57.19 billion. It had hit a 52-week low of $52.60 in February in reaction to the market’s anxiety on weaker results being announced by Tableau Software and LinkedIn that created broad concerns about the state of the Cloud Computing sector. It recovered soon after its second quarter results and reinforced that the Cloud is just fine.

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