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Why Salesforce Just Raised its Outlook for the Fourth Time

November 19, 2015

Salesforce.com's Dreamforce 2014 ConferenceSalesforce.com's Dreamforce 2014 Conference
Marc Benioff delivers the keynote speech at Salesforce.com's Dreamforce 2014 Conference at Moscone South on October 14, 2014 in San Francisco, California. (Photo by Tim Mosenfelder/Getty Images)Tim Mosenfelder Getty Images

Salesforce (CRM) raised its full-year revenue forecast for the fourth time after reporting a quarterly adjusted profit above market expectations, driven by higher demand for its web-based sales and marketing software.

Shares of the world’s largest maker of online sales software rose as much as 6 percent in extended trading on Wednesday.

San Francisco-based Salesforce has been benefiting as more businesses choose cheaper and easier cloud software services. The company provides its services online, with no software directly installed on PCs.

“What we are finally seeing after many years is some reasonable operating margin expansion,” FBN Securities analyst Shebly Seyrafi said, adding that the upside potential was huge.

The company’s adjusted operating margin expanded to 13.3 percent in the third quarter ended Oct. 31 from 11.3 percent a year earlier.

“As revenue growth decelerates there should be an expectation of some general margin improvement over time,” Pivotal Research Group analyst Brian Wieser said.

Salesforce raised its revenue forecast for the year ending January 2016 to $6.64 billion-$6.65 billion from $6.60 billion-$6.63 billion.

Revenue rose 23.7 percent to $1.71 billion in the third quarter. Analysts on average had expected $1.70 billion, according to Thomson Reuters I/B/E/S.

Unbilled deferred revenue—a critical but off-balance-sheet measure of contracts closed with business customers—jumped 24 percent to $6.7 billion as of Oct. 31.

Salesforce has been gaining market share from Oracle (ORCL) and SAP in customer relationship management software that helps companies organize and track sales calls and leads.

The company’s net loss narrowed to $25.2 million, or 4 cents per share, from $38.9 million, or 6 cents per share, a year earlier.

Excluding items, Salesforce earned 21 cents per share, beating analysts’ average estimate of 19 cents per share.

Salesforce shares were trading at $81.40 in extended trading. Up to Wednesday’s close, they had risen about 30 percent this year.

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