North America

Earnings Preview: Salesforce Q3 2018 (CRM)

By: Craig Bowles

Overview

Salesforce.com (CRM) is slated to report 3Q 2018 (fiscal year) earnings after the bell on Tuesday, November 21st. 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 $0.36 to $0.37. The Street estimate is $0.37. (source: Yahoo! Finance) Consensus was $0.36 three months ago.
  • Revenues: Company guidance is $2.64 bln to $2.65 bln. Analysts expect an increase of 23.5% y/y to $2.65 bln. Consensus was $2.61 bln three months ago.
  • Adjusted Earnings Per Share Guidance for Q4 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 $0.34 (range $0.32 to $0.38).
  • Revenues Guidance for Q4 2018: The Street estimate is an increase of 21.8% y/y to $2.79 bln (range $2.77 bln to $2.83 bln).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2018: Company guidance is $1.29 to $1.31. The Street estimate is $1.32.
  • Revenues Guidance for FY2018: Company guidance is $10.35 bln to $10.40 bln. The Street estimate is an increase of 23.9% y/y to $10.40 bln.
  • Adjusted Earnings Per Share (EPS) Guidance for FY2019: The Street estimate is $1.71 (range $1.57 to $1.90).
  • Revenues Guidance for FY2019: The Street estimate is an increase of 20.0% y/y to $12.48 bln (range $12.06 bln to $12.74 bln).
  • Price/Book of 9.0 compares to a 5-year average of 10.7, Price/Sales of 8.1 compares to a 5-year average of 7.8, and Price/Cash Flow of 31.5 compares to a 5-year average of 32.2.
  • Analysts view Salesforce with 44 Buy, 4 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 832,944 (1,472,971 last qtr) shares the last three months and 4,907,782 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 3.86%. Options are pricing in an implied move of 2.40% off earnings.

Recent News

  • 11/12: Salesforce projected annual revenue of $20 billion to $22 billion by fiscal 2022 in an Analysts Day presentation, according to a post at MarketWatch.com.
  • 11/06: Salesforce and Google revealed plans to integrate Google’s office software suite called G Suite with Salesforce’s core platform, according to a post at Forbes.com.
  • 10/30: Guggenheim initiated coverage of Salesforce with a Buy rating writing that it is the “most compelling” investment in cloud computing. Concerns of profit margin and continuing to increase revenue at a 20% rate can be overcome, according to a post at Barron’s.com.
  • 10/17: Salesforce and Amazon reinforced their strategic alliance through a new venture. Per the deal, Salesforce is now live on Amazon Web Services, which is likely to expand its customer base in Australia, according to a post at Zack’s.com.
  • 09/19: Salesforce Einstein announced a $50 million fund to encourage startups to build AI-fueled applications on top of Salesforce, according to a post at TechCrunch.com.

Summary

Microsoft, Oracle, SAP, McDermott, and Amazon have been previously mentioned as potential bidders for Salesforce. Guggenheim and UBS initiated coverage with Buy ratings citing expectations for Salesforce to improve profit margins. Insider selling was a bit less the past three months due to some September buying when the stock slipped. The company has beaten estimates by an average of 2c for the last four quarters. Estimize consensus for Non-GAAP EPS of $0.39 on revenue of $2.667 bln compares to analyst consensus of $0.37 on revenue of $2.65 bln. Guidance has historically dictated the market reaction and a first view of FY2019 is expected.

 

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