The server outage that caused Salesforce to go down for almost all day last week could cost the company nearly $20 million, according to a note published by the financial services firm D.A. Davidson on Wednesday.
The outage occurred last Tuesday as a result of a server bug in the North America region. Salesforce customers were not able to access the cloud software for hours, and it caused the company to lose a chunk of customer data as a result of it.
“Depending on Salesforce’s response and affected customers’ service level agreements, we estimate this outage could impact current quarter revenue guidance by ~$20 million,” the note said.
For a company that’s on track to generate over $8 billion in revenue this year, a $20 million hit won’t be much of a dent. But it could lead to more long-term problems, such as trust and reliability issues, as it’s almost unprecedented for a cloud service platform to suffer a day-long server disruption.
On top of that, as we previously reported, some of the smaller customers do not have service level agreements that would have compensated for the service disruption and data loss. That could cause some of the customers to question Salesforce’s reliability and potentially leave for a different service, noted Jefferies analyst John DiFucci.
“While any repercussions arising from this outage remains to be seen (e.g., increased customer churn), this outage is clearly a short-term headwind for a company trying to become a standard platform for business-critical enterprise applications that may cause customers to question the reliability of the platform,” DiFucci wrote in a note.
The estimated $20 million loss won’t have any impact on Salesforce’s first quarter earnings, as the outage happened during the company’s second fiscal quarter. But the company could provide some additional explanations around the outage in its first quarter earnings report, which will be disclosed Wednesday after the bell.
Despite all this, Salesforce is expected to report another strong quarter. Its largest revenue-driver, Sales Cloud, keeps growing, while Service Cloud and Marketing Cloud also remain strong. Plus, the company has been placing more focus on improving profitability in recent quarters, a positive sign for investors.
Here is what analysts are expecting, according to Yahoo Finance:
- Q1 non-GAAP earnings per share (EPS): $0.23, up from $0.16 in Q1 2015.
- Q1 Revenue: $1.89 billion, up about 25.3% from $1.51 billion in the year-ago period.
“Propelled by replacement and expansion cycles across B2B and B2C implementations, we expect the CRM market to offer the greatest incremental revenue growth opportunity for software vendors over (at least) the next three to five years. We view Salesforce.com as the company in our coverage universe most leveraged to this massive technology refresh and expansion cycle across the CRM market,” Credit Suisse wrote in a note Wednesday.
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