Why It's So Hard for Salesforce.com to Make a Profit

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Salesforce.com CEO Marc Benioff and Amazon's chief executive Jeff Bezos have one big thing in common: Both have perfected the art of unflinchingly telling investors that their No. 1 priority is growing their companies' top-lines, and that margins and profits don't matter much for them. For the last ten quarters or so, Salesforce.com has returned a net loss, and the last quarter was not any different. The social enterprise Software-as-a-Service, or SaaS, provider recorded a $116.6 million net loss, close to six times the previous year's comparable quarter loss.

Salesforce.com's CRM systems are considered higher-end, perhaps on an equal footing with Oracle's or SAP's , while Microsoft's are considered mid-range. SAP is a better comparison for Salesforce.com since the two are pure-play enterprise software developers, while Oracle and Microsoft are both into software and hardware businesses.

Interestingly, Salesforce.com investors always seem to give it a get-out-of-jail free pass, and bid up its share price after the latest result.

Source: CRM Data by YCharts

Strong revenue growth
Salesforce.com and Amazon have a few other things in common. Both have very strong revenue growth, accompanied by either razor thin profit margins (Amazon) or negative margins (Salesforce.com). Salesforce.com grew its revenue at more than three times the industry average last year-- 36.5% vs. the industry average of 10.8%.

What excited Salesforce.com investors so much was not its big loss, but the fact that the company raised its revenue guidance for the current quarter by $100 million, the biggest quarterly revenue guidance raise for the company in its history. But the nagging question remains, why can't Salesforce.com sweeten the deal further by growing not just its top, but bottom line too? Its profit margin has remained in the negative territory for close to two years now.

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