Salesforce, Inc.
Q3 2013 Earnings Call Transcript

Published: 21 Nov 2012

[Operator:]

Good afternoon. My name is Jamaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the salesforce.com Q3 2013 Earnings Call. [Operator Instructions] Thank you. I will now turn the call over to Mr. David Havlek, Senior Vice President of Finance. Sir, you may begin.

[David Havlek:]

Thanks, Jamaria. Good afternoon, and thank you all for joining us today to discuss salesforce.com's third quarter fiscal year 2013 results. Details of our results can be found in a press release issued about an hour ago or in our Form 8-K filed with the SEC. We'll also be tweeting the highlights of our call today on Twitter at the handle @salesforce_ir. I'm joined today by Marc Benioff, Chairman and CEO; and Graham Smith, our Chief Financial Officer. Marc and Graham will share a few prepared remarks about the quarter, and then we'll open things up to your questions. Please note that our commentary today will primarily be in non-GAAP terms. Reconciliations between GAAP and non-GAAP metrics for both reported results and forward guidance can be found in our earnings press release. In addition, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised the additional detail maybe onetime in nature and may or may not be provided in the future. It's possible we may reference certain unreleased services or features not yet currently available in our discussion today. Because we can't guarantee the future timing or availability of these services or features, we recommend customers listening today make their purchase decisions based on services and features that are currently available. Let me give you a quick Safe Harbor here before we start. The primary purpose of today's call is to provide you with information regarding our fiscal third quarter 2013 performance. Some of our discussions and responses to your questions may contain forward-looking statements. These are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. All of these risks, uncertainties and assumptions, of course, as well as other information on potential risk factors that could affect our financial results, are included in our forms filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors. Access to our third quarter results press release, historical results or SEC filings and a webcast replay of today's call can all be found on our Investor Relations website at salesforce.com/investors. With that, let me turn the call over to Marc.

[Marc Benioff:]

Hey thanks very much, David, and I'm thrilled to kick off our third quarter results and let's begin. First of all, highlights for the quarter. Number one, congratulations to San Francisco Giants for a spectacular World Series win, really great. Also in the quarter, I'm also pleased to announce we were able to achieve an annual revenue run rate of more than $3 billion. We're one of a small number of software companies to ever achieve this milestone. And this financial achievement also demonstrates the massive shift to social and mobile cloud computing, an amazing level of customer success that companies have had with Salesforce, our technology and our ecosystem. Hey, let's get right into the results. Number one, revenue for the quarter rose 35% from a year ago to $788 million, pretty awesome, and constant currency revenue grew even faster at 37%. I mean, that is really spectacular growth and I think one of the very best for an enterprise software company this quarter. No other enterprise software company of our size is growing faster than Salesforce. And what's amazing is we're delivering this growth while pushing through this $3 billion revenue run rate, heading right into $4 billion. Operating cash flow exceeded $100 million for the quarter, our fifth consecutive quarter with operating cash flow in excess of $100 million, just a great job on cash flow over last year. Deferred revenue was roughly $1.3 billion, which is up more than 40% year-over-year. And the dollar value of book business on and off the balance sheet now tops $4.3 billion. Our top line and pipeline of new business coming out of Dreamforce positions us for a strong finish to the year, with fiscal year 2013 revenue growth of approximately 34% year-over-year. No other enterprise software company is achieving this level of growth. And we are well placed for even more success next year. I'm thrilled to announce that we expect to deliver fiscal year 2014 revenue in the range of $3.8 billion to $3.85 billion, which puts us on pace to exceed that magical $4 billion number annual revenue run rate just next year. Salesforce has always been a catalyst and evangelist for changing enterprise software. And we've pioneered the shift to cloud, we've pioneered the shift to social and we've pioneered the shift to mobile. Today, we're delivering this next generation of technology. Look, salesforce.com is the customer company. No other enterprise software company in our industry has defined itself before as the customer company. Companies are turning to us to help them create deep connections with their customers, with their partners, with their employees and between their products and their customers. And with our 6 product lines; the Sales Cloud, the Service Cloud, Marketing Cloud, Salesforce Chatter, Work.com and our Salesforce Platform, our customers have the tools to build a social front office, unlocking greater level of productivity and growth between themselves and their customers using us, using salesforce.com, the customer company. Our vision has opened a door for thousands of companies and empowered them to revolutionize how they engage with their customers. Nowhere has this momentum been more evident than at our Dreamforce conference, where registered attendees nearly doubled from last year. In fact, for those of you who were there remember that incredible energy, excitement, momentum and capability, where more than 90,000 people registered, learned how Salesforce can drive their businesses forward, and that was just on premise, with thousands more who came to visit us online. Now more than ever, companies are looking to Salesforce as their platform for growth. In fact, our customers have made Salesforce the undisputed leader in each of our 4 core markets

[Graham V. Smith:]

Thanks, Marc. We posted another solid quarter in Q3, delivering strong top line and deferred revenue growth, even as we completed the largest acquisition in our history and hosted our more successful Dreamforce event ever. Our new business pipeline is robust, and we're well positioned for a strong finish to fiscal '13. Let me take you through our third quarter results, starting with revenue. Q3 revenue was $788 million, that's up 35% over last year. Excluding an approximately $14 million foreign exchange headwind, revenue on a constant currency basis was up 37% over Q3 last year. And as a reminder, our results this quarter included approximately $9 million in revenue from Buddy Media. Looking at year-over-year growth on a regional basis, revenue in the Americas grew 38% to $547 million, revenue in Europe grew 41% on a constant currency basis and 29% in dollars to $134 million, and revenue in Asia increased 30% in constant currency and 29% in dollars to $107 million. Attrition continued its slow but steady decline, contributing to third quarter top line revenue growth and remains in the low teens on a percentage basis. Turning to the income statement. Non-GAAP operating income was $77 million in the third quarter, that's up 18% over Q3 last year. Our non-GAAP operating margin was approximately 10% in the third quarter, about 135 basis points lower than Q3 last year, due principally to the acquisition of Buddy Media, partially offset by continued efficiency gains in G&A. Year-to-date non-GAAP operating margins are up about 35 basis points over last year, and we continue to target a slight improvement in full year non-GAAP margins in FY '13. Looking ahead, we will continue to focus on driving operating efficiencies while investing in areas that propel our growth. Third quarter headcount additions reflected ongoing investment in sales and R&D. In total, we added more than 550 new employees in Q3, including about 250 people from our acquisition of Buddy Media. This brings our total headcount to more than 9,300. That's up 34% from the third quarter last year. Turning to earnings. Our GAAP results this quarter include the impact of a onetime, noncash charge of $149 million to establish a valuation allowance against our federal and state deferred tax assets. As a result, we posted a third quarter GAAP loss per share of $1.55. While this is a noncash item and excluded from non-GAAP results, I just want to provide some context. Deferred tax assets on the balance sheet represent the value of tax deductions and credits to offset future tax liabilities. These assets include net operating loss carry-forwards, R&D credits and book/tax timing differences, such as accrued liabilities. U.S. GAAP requires companies to regularly assess the realizability of deferred tax assets by evaluating certain criteria. These criteria include whether the company has a cumulative 3-year historical pretax GAAP loss, as well as the timing and likelihood of near-term GAAP profitability. After performing this analysis in Q3, we determined that a valuation allowance was required as near-term realization of these assets is unlikely. But just to be clear, our deferred tax assets have expiry dates many years into the future. And so we do anticipate being able to use these assets at some point to offset perspective tax liabilities. The total valuation allowance impact on third quarter GAAP EPS was a loss of $1.16 per share, and the resulting GAAP tax rate was negative 251%. Until a valuation allowance is reversed, our GAAP tax rate will likely fluctuate from quarter-to-quarter. On a non-GAAP basis, third quarter EPS was $0.33 or about $0.01 above the high end of prior guidance. Non-GAAP EPS was better than we expected due to higher revenue combined with a slightly lower share count and a tax rate that was a bit lower than we projected. That's a non-GAAP tax rate. Turning to cash flow. Operating cash flow in Q3 was $106 million. While this result is down 18% over Q3 last year, it was a good result considering the effect of 3 unusual items

[Operator:]

[Operator Instructions] And our first question comes from Philip Winslow with Crédit Suisse.

[Philip Winslow:]

Marc, just wanted to get a sense of what you're seeing across the various clouds in terms of demand and any change you're seeing there against the sales, marketing, and obviously, the -- it being [indiscernible] of the Service Cloud, too?

[Marc Benioff:]

Well, we have, of course, had some great success with the Sales Cloud, which has become a multibillion-dollar product line for us. And right behind that, we have had the Service Cloud, which we just have seen some extraordinary results last year and this year. And we are very optimistic in terms of that becoming another billion-dollar product line for Salesforce. And right behind that, of course, you see the speed and the rapid delivery of the Platform. And these remain kind of the 3 major horses in the race to become our 3 core billion-dollar businesses. Now we're making, of course, a major investment, as you know, through acquisition as well as organic development with our Marketing Cloud. And in addition to that, we're going to have an incredible success with Work.com. But at our core, we remain very uniquely focused on Sales, Service and Platform right now.

[Operator:]

Our next question is from Mark Murphy with Piper Jaffray.

[Mark R. Murphy:]

I'm wondering if you can update us on adoption trends for the Force.com platform. We seem to be encountering more CIOs of Fortune 1000 companies who are formulating these multiyear, 3- to 5-year plans, where they're trying to move back-office applications onto Force.com. And so to the extent that you might be seeing that kind of deeper commitment, what do you think is driving it? And also just separately, can you comment on whether Hurricane Sandy had any type of impact on the business?

[Marc Benioff:]

Well, I think the #1 thing that you're seeing with Force.com is absolutely something that we have been pursuing over a very long period of time. Of course, we're the very first company to ever use the term Platform as a Service. And we believe there is no faster way to build and deploy an application than a Platform as a Service. And the reason why you're seeing an acceleration of that in your surveys and why we're seeing an acceleration of that in our bookings and our revenue and why the Salesforce platform is the world's #1 enterprise platform and continues to be our fastest-growing product line is because more and more companies are moving to the delivery of next-generation apps, especially mobile apps. And as they look to mobile apps, they are looking to Force.com, and that is becoming a rapid application development deployment vehicle for those mobile applications. You saw that at Dreamforce. You saw us deliver our own Dreamforce application, which was a touch-friendly application that ran on iPads and iPhones, ran on Windows 8 tablets, ran on Kindles. All of these things were easily used to access our Dreamforce app. And that is the use case for our customers. They want to build applications that they can build once and run across all of these things, not just their traditional desktops like their Dell and HP workstations but also their next-generation deployment systems. And we're showing customers how they can build these next-generation mobile apps. And we also released a book at Dreamforce that we had to reprint during the conference because it sold -- it's not sold, but we were giving out tens of thousands of copies of how to use our mobile software development kits. That includes our APIs, which let you deep -- dig in and execute mobile applications. So you can deliver mobile apps using our Force.com system. You can deliver mobile apps using our APIs. You can do some incredible things with the Platform. And these are things that honestly not very many other enterprise software companies have had in mind over in last few years. And we're getting tremendous traction from that, and that's why more than 800,000 developers have quoted the 345,000 apps. At Dreamforce, you saw the developer enthusiasm, and not that we haven't had developer enthusiasm before, but it's definitely turned into a mania. And that's been very exciting for us, and it's a huge tip off our hat to our Platform group, which has done a great job, not just this year and last year but over the last decade, they've been working on this. So it's very exciting.

[Graham V. Smith:]

And I was just going to follow up. We didn't see -- we saw, obviously, some difficulty closing some of the deals in the quarter because of Sandy. But I wouldn't characterize it as having a significant impact on the close to the quarter.

[Operator:]

Our next question is from Brian Schwartz of Oppenheimer.

[Brian J. Schwartz:]

Marc, I know you mentioned that the HR -- the Work.com solution is not a part of the core. But we have been coming across in our charts some very large companies that are adopting the product. So was wondering if you could just update us on the traction that you are seeing with that cloud within your customer base? And also the size of customers that are adopting it if, in fact, you are selling it into these larger enterprises?

[Marc Benioff:]

Okay. Well, we have a tremendous executive, John Wookey, who many of you know as a leader at Oracle and a leader at SAP, who has been pioneering since he got to our company now a little more than a year ago this incredible vision that he has around Work.com. And first and foremost, what Work.com is, for those of you who are not aware of what we're doing is, it's an -- obviously, it's an application in the HR category. But it's not a traditional HR application. It's an application that gives you productivity. And in today's time and today's age, this is something all of our customers need. And we have deeply integrated Work.com as an extension into our core platform and into the Sales Cloud, into the Service Cloud, into the Marketing Cloud. That means that when you're using in Salesforce Chatter, for example, you're able to now give recognition to other employees. Through that recognition, you're also able to badge other employees, and employees start to build a social profile. We've talked about that for over a year the importance of building that social profile. But when you're going to the social profile, you're seeing all these incredible badges that are coming out through Work.com. And it's a bit of a gamification into our core enterprise application suite. Then as you get to the next level, of course, we can acquire other badges through testing, through quizzing, through other types of mechanisms of certification, and you'll see all of your employees get these kind of badges based on maybe a product certification or a marketing certification or an accounting certification which, of course, happens for every company on a regular basis. But we're building that profile on that employee as part of Chatter and as part of Work.com and as part of our core clouds right in the system. Then not only will you see with our employees but then you're going to go on and see it with our partners. So just as partners can now build communities and deploy our core systems like Chatter and Sales Cloud into partner communities or into service committees, you can now badge those partners. So you can see that, that partner has taken on this incredible new capability. And then finally, you're able to even badge users as well and end users. So this whole concept of productivity, of training, of badging, of gamification, we think is going to drive Work.com very rapidly. It's integrated very deeply with the next-gen HR systems like Workday and others. And I really commend John for his great vision for this. And if you haven't seen this product, I'd be happy to have John sit down with you, and you can take a deeper look into Work.com. It's live at Salesforce, and we're getting some great results out of it.

[Operator:]

Our next question is from Adam Holt with Morgan Stanley.

[Adam H. Holt:]

My question is about Europe. You saw acceleration in Europe in a period where a lot of people are seeing deceleration in Europe. Could you drill down on what geographies in particular stood out, if any, products, and really just give us more color on why your business seems to be improving there against what's obviously a very difficult backdrop?

[Marc Benioff:]

I think that when it comes to Europe, of course, Europe has been in a financial crisis this entire year, and you've seen us deliver really outstanding performance in Europe. And that is really based on an investment gambit that we had been making now in Europe for more than a decade. When you look at the major enterprise software markets in the world, 3 of those core enterprise software markets are the U.K., France and Germany. And it has taken us a long time to get these markets online with us, building the distribution organizations, investing in the marketing capabilities, readying the products, building the customer testimonials. Just in the U.S., as you know, where we have a very dominant position in these markets, because of a similar long-term investment, these next-generation markets have taken even longer for us to address. And it's been very exciting for us to get to this next level of performance. And we have a great leadership team in Europe, and you can see that with our Head of Europe. And he's done just a spectacular job. So we're all very excited about the delivery of the European business this year.

[Operator:]

Our next question is from Steve Ashley with Robert W. Baird.

[Steven M. Ashley:]

Just about systems integrators and their ability just to keep pace with your rapid innovation. Clearly, they've aligned themselves with Sales Cloud and Service Cloud, but now you have some new offerings, Marketing Cloud, Work.com. Have you seen them start to extend practices into those new areas? And what is the opportunity there for greater support?

[Marc Benioff:]

We've been making major investments in the systems integrator world for a long time, and that includes the major systems integrators like Accenture and Deloitte. You've seen them at our major conferences and events and also a whole next generation of systems integrators who have built their businesses using our business. And in all cases, those systems integrators are looking for revenue. And they see the growth and the opportunity to build these next-generation customer systems. Next-generation customer systems are not limited to sales or service or marketing or a platform but really the combination of all of these things. And our system integrators that we work with recognize that and are working to build business capabilities in all of those areas. We have clearly a strong capability to become the customer company, and that is the company that our customers turn to, to provide the systems to integrate with their customers. And that means that we have got to deliver quality capability in Sales, Service, Marketing and Platform. And we need the partnerships with the system integrators because we have such a minor professional services capability at Salesforce by design that we need them to step up and make those investments. And in many cases, they have and I've seen tremendous results from them.

[Operator:]

Our next question is from Heather Bellini with Goldman Sachs.

[Heather Bellini:]

Marc, my question was -- you guys have added so much product depth and breadth over the last few years with Marketing and Service and Platform, as you mentioned. I'm just wondering, these sales seem to be getting much more strategic and kind of going cross departments. I'm just wondering from a sales perspective, has your go-to-market -- do you see your go-to-market having to change and your sales process having to change versus maybe when you were just focused on primarily on Sales Cloud?

[Marc Benioff:]

Well, when you're a one-product company, it's very easy to execute. It's see a bear, shoot a bear. And that's how it is with Sales Force Automation. And when you become a customer company and you're working on sales and service and marketing and platform and building all the capabilities that your customers need to connect with their customers in these incredible new ways, well, then, you're right in that our employees, our sales reps, our systems engineers need to have the expertise on all of those different product categories. But in terms of fundamental changes to how we sell product, we have not seen a need to make those kinds of changes. And the reason I can tell you that is actually based on experience and testing. We have been testing different go-to-market models. We've been testing not just overlay sales organizations to our core organization but dedicated sales organizations that are align-oriented. We've also had partner-based sales organizations. And in all cases, we've been able to come back to our core Salesforce in the anointment and the acceleration of them to be able to sell all these solutions. We continue to test in different regions and markets in the world and in different product lines, different sales models, different distribution models. But I believe that the fundamental model that we have in place will win out. And in many cases, our sales organization has demonstrated its ability to sell these incredible new acquisitions. You may remember it was just a short time ago, maybe a couple of years ago, that we acquired a company called Jigsaw. And that has been a tremendous new revenue line to our Sales Cloud. And as we look to Data.com, which is kind of the re-branding of Jigsaw, becoming more than $100 million business with us, we are seeing our core sales organization be able to sell and deliver that revenue. And that's been awesome for us, and we started with the direct organization there. It went to a blended organization, and then we can see our core organization being able to sell that. And that's been a great acquisition for us. And it's a great differentiator. It's part of our core technology. It's something that all of our customers need, and it's something that our core sales force can sell. And that's how we want these acquisitions to turn out. It takes a multiyear investment, and it also takes a relentless focus on them. But in that case, Data.com becoming a great differentiator, by the way, on the Sales Cloud and/or Work.com becoming also another great differentiator on the Sales Cloud, the Platform becoming a great differentiator in the Sales Cloud. In all situations, we're able to see our core sales organization sell those capabilities, coupled with appropriate systems engineering resources and overlays. But it really gets back to our core distribution model that we've invested so much in and continue to do so that could give us the execution capability there.

[Operator:]

Our next question is from Brent Thill with UBS.

[Brent Thill:]

Graham, just a follow-up on the deferred revenue for Q4. Can you just help us understand some of the assumptions that you're making when you mentioned the growth range bracket in terms of your assumptions just on the macro and large deal flow? I think you've talked about some large deals in the past quarters. We didn't hear that much about it this quarter. Can you just give us a sense of what that range implies?

[Graham V. Smith:]

Well, sure. I mean, we've obviously seen a few quarters now of a consistent trend on the annual bill frequency, which is having an impact on deferred revenue, which we've, I think, gone to some lengths to explain each quarter. And so we've -- we're sort of assuming that we're going to see a little bit of that continue in Q4. The anniversary of that is during the fourth quarter obviously. So that's -- we've assumed a few points of improvement but clearly not the 7 or 8 points of improvement we've been seeing over the last few quarters. We're assuming that we're not, at this point, going to have another large multiyear invoice. That's always possible. But certainly, my deferred revenue guidance at the mid- to high-20% range does not assume another large multiyear invoice drops in the fourth quarter. And then the rest, obviously, the deferred revenue is sort of the underlying trend on deferred revenue, which is related clearly to our revenue guidance. And that's obviously, in turn, based on attrition assumptions and our pipeline ratios that we look at each quarter.

[Operator:]

Our next question is from Kirk Materne with Evercore Partners.

[Stewart Materne:]

Marc, the federal fiscal year finished up this quarter. And I was just kind of curious on your view on how you guys are sort of taking advantage of the government's sort of view on going to cloud first. I realize it's a small part of your business now. But I guess how do you feel about sort of the momentum in that business and the ability for that business to maybe start moving the needle in terms of becoming a bigger, bigger part of the overall story for Salesforce?

[Marc Benioff:]

Well, as you said, we have not really focused on the government as a traditional acquirer of our technology just because we've seen so many other ready markets. We did acquire an executive and doubled down our investment in the government markets. That was Vivek Kundra, who was the former CIO of the U.S. Federal Government, joined our team. And we're very excited about having him on board, and he is rebuilding our strategy and execution in that area. But this is just not an area that we have traditionally gone after. I think at some point, we will be able to announce some substantial transactions. And the reason why is our main customer in the U.S. government has been the GSA. And the GSA, as you know, is the dominant buying authority for the U.S. government. They are really the ones who have led the cloud-first initiative and execution. They've done tremendous work with us, with Chatter, with our Sales Cloud, the deployment of other cloud-based applications, such as those from Google. And many other government agencies are looking to them like what we've seen in Health and Human Services, Department of Energy and others. Of course, you have to look for our government business being mostly dominant in Japan, where the Japan Post remains one of our largest and most important customers in the world. The Japan Post, as you know, has hundreds of thousands of employees and serves 100 million Japanese customers as their dominant post office, also insurance company and bank. And we continue to expand our relationships with the Japan Post. And you saw other recent announcements with us with the U.K., with the G-Cloud, but those are not material to our revenue today. But we are very focused on showing to others what we've done in Japan and with GSA as our true highlight of our government business.

[Operator:]

Our next question is from Jason Maynard with Wells Fargo.

[Jason Maynard:]

Marc, I have a question about your small and mid-sized customer base. And I'm curious how you would characterize the multi-product sales into the SMB versus the enterprise, because clearly, with big deals, it's multiple products that are being consumed. What's the trend in the SMB? And how do some of the new products, Desk.com and some of this, fit into the model? And what are you seeing in terms of adoption rates for some of the new offerings?

[Marc Benioff:]

Yes, thanks so much, Jason. We've just had just some great success in the small and medium marketplace, where we've seen that customers, our customers, they're able to really standardize on our products and get to a SELA or Social Enterprise License Agreement much faster than the largest of companies. Over and over again, we see these next generation of companies standardizing on us in that area, and it's been and continues to be a very strong business for us. And while we saw some weakness, for example, in small businesses earlier this year, that cleared up in this quarter. And we saw some very solid delivery from what we call our commercial sales organization. This quarter, we have a great leadership team in commercial, and they did another very nice job and consistent delivery for us. And the customers, and I'm sure you met many of them at Dreamforce, are indeed buying all of those products sometimes as one agreement.

[Operator:]

Our next question is from Laura Lederman with William Blair.

[Laura Lederman:]

Can you talk a little bit about the marketing suite and whether or not you think that you need to kind of be in the traditional pieces of that, such as campaign management and lead management and email marketing? Or is it really more the newer social pieces that you think are important going forward as you build out a marketing suite?

[Marc Benioff:]

Well, as you know now, just for a little more than a year, we've been very focused on building out our Marketing Cloud. And that started with our acquisition of Radian6, which is a business that will move to over $100 million in revenue next year and that's been very exciting. And now we've coupled that with Buddy Media, which also is a fast grower as well. But we are at the very beginning of our journey with the Marketing Cloud. And while we've made 2 incredible acquisitions with 2 incredible leaders, with Michael Lazerow and Marcel LeBrun, and we've coupled that with our core Salesforce leadership by giving Brett Queener the position of EVP of our Marketing Cloud and also bringing in Susan St. Ledger to run our core sales operations, one of our top performers in sales to run Marketing Cloud sales. What we have been excited about with the Marketing Cloud is that it has a huge runway. Now you've mentioned many of the directions that we could move with the Marketing Cloud. None of those directions are as important as just pure play execution of the assets that we have acquired. And one of the ways that we make our acquisitions successful at Salesforce is that we focus on the day-to-day execution of those assets. And Marketing Cloud has to focus on the success of Radian and Buddy. And then when we see those online, then we move onto the next one. And that's very much what we did with Radian6. We saw some great success; we've moved on to Buddy. I'm sure there will be another chapter. This is an area that we're going to, of course, innovate organically and inorganically in. And as you know by 2017, Gartner says that CMOs will spend more than CIOs on technology, and we want to be prepared for that as the worldwide leader in providing marketing automation to our customers. And there's a lot of exciting opportunities, companies, new technologies, entrepreneurs for us to partner with in doing that. But we have to be cautious in terms of taking on these acquisitions because we have to execute on them. And that's been our focus, and that's what we will continue to do. And then when we feel like those businesses are going well, then we reconsider what the next step is.

[Operator:]

Our next question is from Derrick Wood with Susquehanna International Group. [Technical Difficulty]

[Marc Benioff:]

No Derrick? We’re moving on.

[Operator:]

All right. And our next question is from Kash Rangan with Merrill Lynch.

[Kash G. Rangan:]

Non-sales mix of the cloud. It's been steadily growing up very nicely, about 45% or so, at the Analyst Day. Now as you look at the non-Sales Clouds, they are the faster-growing businesses. So at some point, it feels like your business -- sorry, this is [indiscernible] the actual rate, although it's actually very good growth rate. You've got non-Sales Cloud businesses growing rapidly. They're getting to be like 50% of the new business mix. And if you staff it properly, it just feels like this could be a market as big as, maybe even larger, than ERP. What's the right way to think about your business mix with different moving parts as you look at your business over the next 4 to 5 years?

[Marc Benioff:]

Well, I think that you went through a lot of it. You know that we have a multibillion-dollar business on our hands with the Sales Cloud that continues to do well. That's highly differentiated with many of the capabilities that we talked about on the call today, including the Platform, Data, Work and also including the service systems and marketing systems. You know that we continue to grow Service Cloud, which has been rated by Gartner and Forrester as perhaps the absolute leader in the customer service community. And that's becoming very rapidly a billion-dollar business for us. And then you also know that we have a barn burner on our hands with Platform. And those things are changing the mix of our revenue because our sales reps have more to sell than just the Sales Cloud. In addition to that, we have future revenue opportunities with product lines like Marketing Cloud and others. But we've moved to, successfully I would say, from being a single-product company to a multi-product company. And we also moved successfully from having a single billion-dollar business to what will clearly be multiple billion-dollar businesses. And that is very important for the future success of our company and our shareholders. Very hard to do as very few companies in the software industry have ever pulled that off, as you know. And we continue to focus on our core execution across those product lines, and you articulated our product strategy very well. It's not hidden. We're focused on sales, and we're focused on service, we're focused on marketing as our 3 core application areas. And then we are focused on Chatter, Platform and Work as some of our very core differentiation and also future revenue lines. And in all cases, all 6 of those core product lines together, positioning us as the customer company, the company our customers are choosing to go with to rapidly deploy these next-generation customer systems and get their absolute fastest time to money and the rapid return on investment that they're looking for.

[Operator:]

Our next question is from Ross MacMillan with Jefferies & Company.

[Ross MacMillan:]

Marc, services being such a great growth driver for the company for some time now, do you think Service can ultimately be as big, or if not bigger, than Sales Cloud? And then secondarily, one for Graham, you talked about cash flow from operations this year being 20% growth. I think that was a change from the low 20% growth last quarter. If that is a change, can you just give us the puts and takes on that?

[Marc Benioff:]

Well, it's hard to say at this point, because the Sales Cloud has been so successful. When will the -- when will Service Cloud pass it? I don't really know, and I'm not able to make that prediction. And if I was able to make that prediction, I would tell you. But there's no doubt that Service and Sales are 2 really -- 2 great foundational assets for the company, where we've done well and where our competitors have struggled. And that remains our focus, and we've got a great team on that. Graham, would you like to finish up on that?

[Graham V. Smith:]

Sorry. Can you just repeat the question? Did we cut him off? Sorry, what was the question, Marc? I had some [indiscernible].

[Ross MacMillan:]

Sorry, Graham, I didn't mean to cut you off.

[Graham V. Smith:]

Yes. I think we've got guidance for full year operating cash flow of around 20%. Obviously, we had a big $40 million boost in Q4 last year from the multiyear invoice. But we're comfortable with the 20% operating cash flow number for the full year.

[Operator:]

Okay. And our final question for today will come from Rick Sherlund with Nomura.

[Richard G. Sherlund:]

First, for Graham. Graham, was there any impact at all from the fiscal cliff we saw from a lot of the on-premise companies? We didn't see it from NetSuite, Cornerstone or apparently not from you guys, so if you could offer us any perspective there. And Marc, just for you, I don't know if you've had an opportunity to respond, if you care to, to Larry Ellison's comments at Oracle OpenWorld recently about multi-tenancy in the database. I wonder if you could just comment whether Oracle or SAP, given all their acquisitions, you're seeing any more of them in the market.

[Graham V. Smith:]

Yes. So just to take your -- the first question. I think, clearly, we -- we're mindful of the environment we're operating in. I think in terms of our guidance, we weigh all the different factors that I outlined earlier. And so I think when you -- when we get through the fourth quarter, we'll, I think, have a much better sense as to whether there is any impact of a pullback in investments. Certainly, there have been in the articles in the press over the last few days about that. But we stated our guidance comfortably for this quarter. So I think it's really, to me, this is all about what's the fourth quarter hold for us. Clearly, it's a big new business and renewals quarter. So I think we'll have much better insight to that in February. Marc?

[Marc Benioff:]

My analysis is that for SAP, they have repositioned themselves as a company that offers analytics through Business Objects and data warehousing with HANA, and that this is their major focus of their work going forward. And both of those technologies on-premise with a somewhat immaterial percentage of their revenue as in the cloud. With Oracle, I think that they repositioned themselves as a mainframe company and operating system provider and also depositioned themselves in our core space through their conference. And in terms of those 2 companies, it's not that we don't see them. Of course, you see them. You'll see customer flare-ups or places where they have especially strong customer relationships. But they have not provided the next-generation vision for customer-based systems, whether it is how to connect with your customers, your employees, your partners and your products in an entirely new way. I think that you saw at Dreamforce, we have future-forward positioning. We're trying to be extremely mindful and project the future for our customers. And it's a very different approach than how they have been marketing their products and the areas where they've been focused on in their bookings. And our focus has been fairly consistent over the last 36 months. It will continue to be very consistent in these areas. And while they have their positioning in their company, whether it's SAP as kind of the HANA company and Oracle as the Exadata company, we want to be the customer company.

[David Havlek:]

All right, great. That wraps up our call for the day. Thanks, Marc and Graham. I want to apologize to everybody who we didn't get to. We have lots of you still in the queue. Please feel free to reach out to us. For those of you who we'll see in Tokyo, we look forward to that.

[Marc Benioff:]

Yes. Oh, we're absolutely looking forward to seeing everybody in Japan.

[David Havlek:]

Great. And have a fantastic holiday. And we look forward to catching up with you soon. Bye-bye now.

[Marc Benioff:]

Happy Thanksgiving, everyone.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's salesforce.com Q3 2013 Earnings Call. You may now disconnect.