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Salesforce Beats Estimates

Revenue at the business software company grows 58%.

Updated from 4:40 p.m. EST

Salesforce.com

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increased fourth-quarter revenue by 58% and beat Wall Street's earnings expectations.

But guidance was on the light side and the company's strong subscriber growth didn't drive as much revenue as some investors had hoped. As a result, the stock slipped in after-market trading by $2.50, or 5.2%, to $45.50.

The San Francisco-based business software company reported Wednesday that it earned a profit of $516,000, or break-even on a per-share basis. That compares with a profit of $5.9 million, or a nickel a share, a year ago.

However, the latest quarter's income statement was weighed down by the cost of stock options, an item not included in last year's figures.

Excluding the cost of options -- $11.2 million -- and the cost of amortization -- about $500,000, Salesforce earned a profit of about 10 cents a share.

Revenue came in $144.2 million.

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Analysts polled by Thomson First Call were forecasting a profit of 7cents a share (excluding the cost of options) on sales of $142.9 million.

Net paying subscribers rose by 90,000 in the quarter, on the high side of expectations which ranged from about 85,000 to 90,000 new subscribers.

Cowen analyst Peter Goldmacher said that investors expected the surge in subscribers to translate into even greater revenue growth than the 58% increase the company delivered. "You can't pay bills with subscribers, you pay them with cash."

Goldmacher said that discounting to win large deals is the likely cause for the slower-than-expected revenue growth. Subscriber growth, he said, is becoming less important than cash flow and other metrics as the company grows. His company does not have an investment banking relationship with Salesforce.com.

Indeed, Salesforce CFO Steve Cakebread made a similar point during a conference call with analysts Wednesday, and said that the company will now report subscriber numbers twice a year, instead of once a quarter as it does now. Subscriber growth, he said, "is not the best indicator of our future performance."

CEO Marc Benioff said that his priority remains growth, saying "Unlike other enterprise software companies, we are a top-line, growth-oriented company." Consequently, it's likely that the company continued to invest heavily in the business.

In the fourth quarter, expenses increased by 74.4% to $112.46 million; for the full year, they were up 73% to $381.8 million. And it's likely that the trend will continue.

Looking to the first fiscal quarter, the company projects revenue in the range of $155 million to $157 million, which is in line with expectations. Including options and amortization, the company forecasts an EPS ranging from the loss of a penny to a profit of 1 cent. Analysts had forecast an EPS of 1 cent on the same basis.

For the full year, the company said, revenue will likely range from $710 million to $720 million, with a midpoint that is a bit less than expectations of $717 million. GAAP earnings will range from 7 cents a share to 9 cents a share. Wall Street was looking for 9 cents a share.