By Gerry Shih
SAN FRANCISCO (Reuters) - Salesforce.com Inc's third-quarter earnings outlook missed analysts' estimates and its stock fell more than 5 percent in after-hours trading.
The San Francisco-based company blamed foreign exchange fluctuations and faltering technology spending in Europe for its third-quarter earnings forecast of 31 or 32 cents per share, short of the 34 cents expected by analysts.
Salesforce.com posted a 34 percent jump in second-quarter revenue, to $731.6 million, beating the Street's $728 million target.
But Salesforce.com's aggressive revenue growth strategy under Chief Executive Officer Marc Benioff and a price war with competitors like Oracle Corp and SAP may be cutting into its margins, analysts said.
Salesforce.com, founded in 1999 in Benioff's San Francisco apartment as a sales management software company, has invested heavily in recent quarters to build out a suite of offerings that encompasses marketing and human resource functions. In June, the company announced a $689 million deal to buy Buddy Media, a company that helps advertisers market on social-media networks and websites.
Fears of waning technology spending have sent Salesforce.com's shares down about 9 percent since their 2012 peak in April, while competition with rival Oracle, which has made its own social media marketing acquisitions, has increased.
"The competitive environment is getting more intense," said Global Equities Research analyst Trip Chowdhry.
On a conference call with analysts, Benioff touted his software package as the future of "social enterprise" and promised a glimpse of its features at the company's Dreamforce conference in September.
He defended the Buddy Media purchase, which came a year after Salesforce.com bought social media monitoring company Radian6 for $326 million, saying the deal was necessary to bolster Salesforce.com's market position in the new social enterprise arena. Radian6 software allows companies to track what consumers are saying online about their companies.
"Our strategy was very simple: We had to once again acquire the number one player," Benioff said, while warning that integrating the acquisitions will not happen overnight.
Benioff's acquisitions and heavy spending to increase revenue has attracted some criticism to a company that often posts modest profits despite its record of searing top-line growth.
"There's a pretty sizeable contingent of investors that would like to see Salesforce slow their pace of acquisitions and focus on integrating what they have," said Pat Walravens, an analyst with JMP Securities.
Total cost of revenue rose 34 percent in the quarter to $162 million.
Salesforce.com reported a net loss of $9.9 million, or 7 cents a share, for its second quarter, ended July 31, double the $4.3 million, or 3 cents a share, loss from a year earlier. Excluding certain items, such as stock-based compensation expense of $85 million, it earned 42 cents a share. That beat the 39 cents a share expected on average by Wall Street, according to Thomson Reuters I/B/E/S.
The company slightly raised its full-year guidance for the full year 2013 to between $1.48 and $1.51 a share despite "considerable foreign exchange headwinds," said Chief Financial Officer Graham Smith.
Smith said Salesforce.com is encouraging its customers to pay for its services on an annual basis, a shift that could impact billings, the metric for the dollar amount that the company has invoiced in a given quarter.
During the second quarter, Salesforce.com closed one of its largest transactions with a networking technology company, which he did not name, while also adding Nestle as a customer, Benioff said on Thursday. He did not offer details.
Shares slid 5.3 percent after hours to $139 after closing at $146.77 on the New York Stock Exchange.
(Reporting By Gerry Shih; Editing by Steve Orlofsky, Tim Dobbyn and Carol Bishopric)