North America

Earnings Preview: Salesforce.com Q3 2017 (CRM)

By: Craig Bowles

Overview

Salesforce.com (CRM) is slated to report 3Q 2017 (fiscal year) earnings after the bell on Thursday, November 17th. The earnings release is expected at approximately 4:05 p.m. ET followed by a 5:00 p.m. conference call available at Salesforce.com Investor Relations. The company’s broad software as a service (SaaS) CRM suite has steadily transitioned into cloud computing solutions for various businesses and industries worldwide, making the company a frequently discussed takeover target.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.20 to $0.21. The Street estimate is $0.21 (range $0.20 to $0.23). (source: Yahoo! Finance) Consensus was $0.24 three months ago.
  • Revenues: Company guidance is $2.110 bln to $2.120 bln. Analysts expect an increase of 23.7% y/y to $2.12 bln (range $2.10 bln to $2.13 bln). Consensus was $2.13 bln three months ago.
  • Adjusted Earnings Per Share Guidance for Q4 2017: Salesforce earnings guidance for the upcoming quarter tends to have a direct impact on the direction of the share price. The consensus estimate is $0.25 (range $0.23 to $0.27).
  • Revenues Guidance for Q4 2017: The Street estimate is an increase of 23.8% y/y to $2.24 bln (range $2.22 bln to $2.26 bln).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $0.93 to $0.95. The Street estimate is $0.95 (range $0.93 to $0.97).
  • Revenues Guidance for FY2017: Company guidance is $8.275 bln to $8.325 bln. The Street estimate is an increase of 24.7% y/y to $8.31 bln (range $8.28 bln to $8.34 bln).
  • Price/Book of 8.4 compares to a 5-year average of 11.5, Price/Sales of 6.8 compares to a 5-year average of 8.4, and Price/Cash Flow of 27.2 compares to a 5-year average of 33.9.
  • Analysts view Salesforce.com with 45 Buy, 2 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 1,226,575 shares the last three months and 5,102,373 shares in the past year (source: NASDAQ.com). The company hasn’t repurchased shares since 2011.
  • Salesforce results could impact other software as a service platform companies, such as Workday (WDAY), Manhattan Associates (MANH), Paycom Software (PAYC), Oracle (ORCL), NetSuite (N), and Microsoft (MSFT).
  • Salesforce shares have a 1-day average price change on earnings of 5.74%. Options are pricing in an implied move of 8.65% off earnings.

Recent News

  • 11/10: Brian Goldfarb, a cloud veteran who has worked at Microsoft and Google, is leaving his position at Salesforce to become chief marketing officer at Splunk (SPLK), according to a post at Recode.net.
  • 11/01: Morgan Stanley reiterated an Overweight rating on Salesforce.com citing a compelling risk/reward, according to a post at Barron’s.com.
  • 10/18: Rosenblatt Securities initiated coverage of Salesforce.com with a Buy rating citing that the company is the “premiere name” in the field given it delivers “the strongest and most consistent results.”, according to a post at Barron’s.com.
  • 10/18: Hacked Salesforce.com M&A Target Review and marked “draft and confidential” listed 14 companies including Adobe Systems (ADBE) and Pegasystems (PEGA), according to a post at ZeroHedge.com.
  • 10/10: R.W. Baird reiterated an Outperform rating on Salesforce saying, “Twitter called them; they did not call Twitter,” according to a post at Barron’s.com.

Technical Review

Salesforce.com made an all-time high on May 26, 2016 at $84.48 just above the previous high in 2015. Point and figure technicians have a bearish price objective of $69. (Chart courtesy of StockCharts.com)

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Summary

Microsoft, Oracle, SAP, McDermott, and Amazon have been previously mentioned as potential bidders for Salesforce.com. A leaked report suggests Salesforce.com has their own M&A ambitions. Insider selling remained at a healthy clip during the past three months. The company has beaten estimates by an average of 1c for the last four quarters. Estimize consensus for Non-GAAP EPS of $0.23 on revenue of $2.128 bln compares to analyst consensus of $0.21 on revenue of $2.12 bln. Guidance has historically dictated the market reaction.

 

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