North America

Earnings Preview: Salesforce Q1 2018 (CRM)

By: Craig Bowles

Overview

Salesforce.com (CRM) is slated to report 1Q 2018 (fiscal year) earnings after the bell on Thursday, May 18th. 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.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.25 to $0.26. The Street estimate is $0.26 (range $0.25 to $0.35). (source: Yahoo! Finance) Consensus was $0.30 three months ago.
  • Revenues: Company guidance is $2.34 bln to $2.35 bln. Analysts expect an increase of 22.5% y/y to $2.35 bln (range $2.34 bln to $2.36 bln). Consensus was $2.37 bln three months ago.
  • Adjusted Earnings Per Share Guidance for Q2 2018: Salesforce earnings guidance for the upcoming quarter tends to have a direct impact on the direction of the share price. The consensus estimate is $0.31 (range $0.28 to $0.39).
  • Revenues Guidance for Q2 2018: The Street estimate is an increase of 21.9% y/y to $2.48 bln (range $2.45 bln to $2.57 bln).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2018: Company guidance is $1.27 to $1.29. The Street estimate is $1.29 (range $1.27 to $1.32).
  • Revenues Guidance for FY2018: Company guidance is $10.15 bln to $10.20 bln. The Street estimate is an increase of 21.4% y/y to $10.19 bln (range $10.15 bln to $10.23 bln).
  • Price/Book of 8.3 compares to a 5-year average of 10.7, Price/Sales of 7.3 compares to a 5-year average of 7.8, and Price/Cash Flow of 28.3 compares to a 5-year average of 32.2.
  • Analysts view Salesforce.com with 40 Buy, 3 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 1,136,605 shares the last three months and 5,128,453 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 4.53%. Options are pricing in an implied move of 4.10% off earnings.

Recent News

  • 04/26: Salesforce CEO Marc Benioff took a 60% cut to his $33 million pay package to appease investors, according to a post at BusinessInsider.com.
  • 04/06: Salesforce is celebrating the capping of the tallest building west of Chicago (monument-to-self sell signal?), according to a post at CNBC.com.
  • 03/07: Stifel reiterated a Buy rating on Salesforce after an announcement of a strategic partnership with International Business Machines (IBM) to focus on artificial intelligence, according to a post at Barron’s.com.
  • 03/07: Morgan Stanley lists Salesforce as a top pick following the Technology, Media and Telecom (TMT) Conference where COO Keith Block was “clearly upbeat” on the traction the firm is seeing for its verticalization strategy, according to a post at Barron’s.com.

Technical Review

Salesforce.com made an all-time high on May of the last two years, so the timing is certainly right and you would have to assume that an obligatory breather might follow. The bulls would argue that the stock hasn’t really gone anywhere for two years, so don’t underestimate upside duration. (Chart courtesy of StockCharts.com)

Summary

Microsoft, Oracle, SAP, McDermott, and Amazon have been previously mentioned as potential bidders for Salesforce.com. Analysts appear happy that Salesforce.com missed out on their own multi-billion dollar M&A ambitions and can focus on more manageable combinations. Insider selling remained at a healthy clip during the past three months. The company has beaten estimates by an average of 2c for the last four quarters. Estimize consensus for Non-GAAP EPS of $0.27 on revenue of $2.367 bln compares to analyst consensus of $0.26 on revenue of $2.35 bln. Guidance has historically dictated the market reaction.

 

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