Salesforce.com's (CRM) second-quarter results were largely in line with our expectations as the company continues to see strong demand across each of its product verticals. The firm closed its Demandware acquisition in July, which made better-than-expected revenue contributions to the consolidated business in the quarter. While management’s third-quarter guidance was just so-so, full-year guidance was lifted modestly, suggesting the company’s deal pipeline remains strong as Salesforce brings an onslaught of new products to market to strengthen its customer relationships. We are maintaining our wide moat rating and $95 fair value estimate, and shares look attractive following a 7% decline in the wake of the release.

Second-quarter revenue rose 26% versus the prior-year period (27% in constant currency) to $2.04 billion, the company’s first $2 billion revenue quarter. Among the major highlights in the quarter was yet another nine-figure deal closed with a Fortune 50 company, the third quarter in a row with such a deal. Despite a bump in integration costs stemming from the Demandware acquisition, Salesforce continues to deliver on its promises of increased profitability as well, as non-GAAP operating margin expanded roughly 20 basis points to 12.9%. We expect operating margins to improve significantly in the second half as Salesforce generates increased contributions from Demandware, yielding a full-year operating margin in the realm of 14%.

Management also shed some light on its newest products, including the e-commerce platform from Demandware that is already generating conversations among both existing Salesforce customers and new prospects. We expect to hear more about Demandware and Salesforce.com’s artificial intelligence offering Einstein at Dreamforce later this year. While these products remain relatively small in terms of revenue contributions today, we expect them to help Salesforce lock in customers across multiple cloud products over the long haul.

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