Salesforce.com Swings to Profit

Updated from 4:46 p.m. EDT

SAN FRANCISCO -- Salesforce.com(CRM Quote - Cramer on CRM - Stock Picks) beat Wall Street's second-quarter earnings expectations and boosted its full-year revenue guidance.

The business-software maker said revenue rose 49.5% to $176.6 million from $118.1 million a year earlier. Analysts were expecting a top line of $173.7 million, according to Thomson Financial.

Salesforce earned $3.7 million, or 3 cents a share, reversing a year-ago loss of $145,000, or essentially break-even EPS. Analysts were anticipating EPS of 1 cent.

The San Francisco company said third-quarter EPS would be 1 to 2 cents on revenue of $187 million to $189 million. Analysts were expecting EPS of 2 cents on revenue of $188.3 million.

Deferred revenue was up 59% year over year to $322 million. CFO Steve Cakebread said revenue from 45,000 subscribers signed late in the quarter had not been invoiced as of July 31 and should factor into projections for the coming quarters.

Salesforce said it added a record number of paying customers for a single quarter: 3,000, to bring the net total to 35,300, up 42% year on year. Two customers account for more than 30,000 subscribers each.

Net paying subscribers exceeded 800,000, an increase of more than 60% year over year.

Salesforce raised full-year guidance by $4 million on the high end to a range of $727 million to $732 million. Analysts are projecting revenue of $730.2 million. EPS will range from 8 to 10 cents, the company said.

"We're going to see a $1 billion run rate coming up," said Chairman and CEO Marc Benioff.

Shares of Salesforce were up 30 cents to $43.10 in recent after-hours trading.

Gross margin was 77% of revenue, up two percentage points year on year, Cakebread said. Operating cash flow was $35 million for the quarter and $71 million for the first half of the fiscal year, an increase of 71% from same period of 2006.

In the ongoing tit-for-tat among enterprise software makers, Benioff challenged Oracle's(ORCL Quote - Cramer on ORCL - Stock Picks) recent claim that it had taken a large customer, ADP(ADP Quote - Cramer on ADP - Stock Picks), from Salesforce. "That surprised us, and it surprised the president of ADP," said Benioff, who added that ADP remains a Salesforce customer.

"We've never lost a customer of scale," Benioff said. "I don't know of anyone else who can say that. Customer satisfaction is so high." In recent surveys, 95% of Salesforce customers said they are very satisfied, he added.