Earnings Review: Salesforce.com
- The enterprise cloud company beat on earnings and revenue.
- This is one of the best cloud companies in the world with a great CEO.
- Although the company gave a light and steady guidance. This company deserves to be a $100 stock with the growth it has.
Salesforce.com, Inc.(CRM)provides enterprise cloud computing applications. It provides a comprehensive customer and collaboration relationship management service to businesses of all sizes and industries and also provides a technology platform for customers and developers to build and run applications. It’s designs and develops applications to be easy-to-use and intuitive solutions that can be deployed, customized and integrated with other software applications. The company beat on earnings and revenue and reported some tremendous growth numbers. In my humble opinion, Salesforce is the best cloud company in the world led by a great CEO in Marc Benioff.
Salesforce reported earnings of $0.28/share which was better than expected as investors expected $0.25/share. In terms of revenue, Salesforce beat investor expectations by $10 million as they reported $2.29 billion in revenue. I estimated that Salesforce would report earnings of $0.28/share and revenue of $2.27 billion. This estimate got me a ranking of 95 out of the 205 people following the stock on Estimize. Salesforce grew its revenue by 26% and reported 2016 revenue of $8.39 billion. According to the company’s COO, Keith Block they expect to deliver $10 billion in revenue by next year. When looking at cloud companies because of accounting standards deferred revenue is important number that is reported. It shows the future growth of the company. As of Jan 31, 2017 Salesforce had deferred revenue of $5.54 billion (up 29%) and unbilled deferred revenue of $9.0 billion(because of the new clients).
In addition to growing at a double digit growth rate, Salesforce is growing cash at a great rate. The company had operating cash flow of $706 million(up 50%). In 2016, Salesforce generated $2.16 billion in operating cash and this is up 29% year over year. That cash being generated is being used in R&D projects in artificial intelligence and machine learning. Marc Benioff has a great M&A strategy that can bolster company earnings. Salesforce closed M&A deals in 2016 as they spent $4 billion on acquisitions. The company was interested in buying LinkedIn before Microsoft beat them to it.
Management gave a good outlook which was pretty steady and shows that the company has room to grow. Although some investors think that guidance was light, I think it was pretty good and it was what I expected. For fiscal year 2018, Salesforce projects that it will do between 10.15 to 10.2 billion in revenue. This projection represents revenue growth of between 22 to 23% and this is considered as “light” guidance. In terms of cash flow, Salesforce is projecting that it will grow its operating cash flow by 20% and this is also considering foreign exchange fluctuations. Salesforce has truly incredible numbers the stock currently trades at $82.22/share. I think this is one of the best cloud companies in the world if not the best out of all of them.
Verdict: Salesforce.com just keeps on delivering great results, the company has great growth and this year I see the company continuing to innovate. The CEO and Chairman, Marc Benioff had this to say on the earnings call: “Salesforce continues to deliver incredible innovation and unprecedented customer success. We led the industry as the first to bring cloud, social and mobile to CRM, and now with our latest release we are making artificial intelligence available to millions of Salesforce users with Einstein.”
For me the company should be a $100 stock, A+ Quarter.
Disclosure: Cresco has a long position in Salesforce.com
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.