North America

Earnings Preview: Salesforce Q2 2018 (CRM)

By: Craig Bowles

Overview

Salesforce.com (CRM) is slated to report 2Q 2018 (fiscal year) earnings after the bell on Tuesday, August 22nd. 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 $0.31 to $0.32. The Street estimate is $0.32. (source: Yahoo! Finance) Consensus was $0.31 three months ago.
  • Revenues: Company guidance is $2.51 bln to $2.52 bln. Analysts expect an increase of 23.4% y/y to $2.51 bln. Consensus was $2.48 bln three months ago.
  • Adjusted Earnings Per Share Guidance for Q3 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 $0.36 (range $0.32 to $0.42).
  • Revenues Guidance for Q3 2018: The Street estimate is an increase of 21.7% y/y to $2.61 bln (range $2.54 bln to $2.67 bln).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2018: Company guidance is $1.28 to $1.30. The Street estimate is $1.30.
  • Revenues Guidance for FY2018: Company guidance is $10.25 bln to $10.30 bln. The Street estimate is an increase of 22.5% y/y to $10.28 bln.
  • Price/Book of 7.9 compares to a 5-year average of 10.7, Price/Sales of 7.0 compares to a 5-year average of 7.8, and Price/Cash Flow of 26.6 compares to a 5-year average of 32.2.
  • Analysts view Salesforce with 37 Buy, 4 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 1,472,971 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 4.07%. Options are pricing in an implied move of 5.25% off earnings.

Recent News

  • 08/15: Salesforce Einstein, launched in Spring 2017, is seen as the next big growth driver, according to a post at SeekingAlpha.com.
  • 08/02: Salesforce’s second-largest business, Service Cloud, will have a new chief as growth slows. Bill Patterson from Microsoft is the seventh person to lead Service Cloud since it launched in 2009. Previously, Salesforce has brought in Bob Stutz, former Microsoft Dynamics’ head of business, and Randy Kern, an executive from Microsoft’s Azure cloud business, according to a post at CNBC.com.
  • 07/25: The new Salesforce Transit Center (monument-to-self warning?), according to a post at Salesforce.com.
  • 07/13: Salesforce.com CEO Marc Benioff suggested an open door for Microsoft’s workers that have been laid off in the latest reorg, according to a post at BusinessInsider.com.
  • 06/28: Salesforce’s newest ‘Einstein’ AI tools can tell when people are mad in texts and emails, according to a post at BusinessInsider.com.
  • 06/05: Piper Jaffray reiterated an Overweight rating on Salesforce after learnings that reasons behind the senior management reshuffling were for key person retention and not underperformance, according to a post at StreetInsider.com.

Technical Review

Salesforce.com made an all-time high in May of the last two years and hasn’t done much since June’s $92, so there seems to have some seasonality involved. The bulls would argue that the stock hasn’t done much 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. Analysts appear happy that the company 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 3c for the last four quarters. Estimize consensus for Non-GAAP EPS of $0.33 on revenue of $2.538 bln compares to analyst consensus of $0.32 on revenue of $2.51 bln. Guidance has historically dictated the market reaction.

 

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