Earnings Scorecard: Salesforce.com, Inc. 2017Q3
- The cloud-based company reported another strong quarter with an earnings and revenue beat.
- Salesforce’s growth story is still intact and shows why it is one of the secular growth winners in technology.
- The company gave fair guidance as management tries to manage expectations.
Salesforce.com, Inc. delivered another earnings beat on both the top and bottom line. The cloud-based company reported earnings of $0.39/share versus estimates of $0.37/share. In terms of revenue, Salesforce generated $2.68 billion versus expectations of $2.65 billion. The company posted year-over-year revenue growth of 25.2% which is impressive and is one of the main reasons why the stock is up over 50% over the past year. Salesforce is one of the many cloud-based companies that are in the middle of a secular growth trend of cloud, machine learning, and artificial intelligence. Also, the company is one of the beneficiaries of the e-commerce growth as retailers move from traditional brick-and-mortar stores to online.
Looking at the quarter in-depth, the main revenue segment is still the subscription and support business which generated $2.49 billion (25% growth). The services business which is still small posted $194 million in revenue up 20% from a year ago. The company reported deferred revenue of $4.39 billion up 26% from a year ago. The company also reported contracted unbilled revenue of $11.5 billion up 34% from a year ago. These metrics show that Salesforce has a sticky business with its subscription model and the company is also getting more clients to sign up for its services. Salesforce has a wide range of customers across different kinds of industries some of their clients include Activision Blizzard, General Electric, and Coca-cola. This just goes on to show that Salesforce’s growth story is still intact.
Management gave fair guidance for the fourth quarter in which they expect around $2.8 billion. In terms of the fiscal year 2019, management expects between $12.45 billion and 12.5 billion which was in line with most expectations. However, investors could have been expecting more since Salesforce announced a deal with Alphabet’s Google cloud to combine customer relations management technologies. The company also has a partnership with Amazon Web Services and this guidance is a classic “under promise and over deliver” tactic by management. Salesforce also has $3.63 billion and the CEO, Marc Benioff has shown his willingness to use that cash to acquire companies or to invest in smaller start-up companies. The company recently launched a $50 million AI Innovation Fund aimed to invest in machine learning and artificial intelligence. Salesforce seems to be one of the companies that are in a prime position to benefit from the secular growth themes in technology.
Overall, this was another outstanding quarter from Salesforce.com and the company has got so much room to grow around the world. I think is the best cloud company in the world and seems to have a dominant position in customer relationship management. The stock has room to run and I wouldn’t be shocked if the stock hits $125 by year-end. The stock trades at a high valuation (62 times next year’s earnings) but given the company’s growth and deferred revenue, it seems justifiable. This is a stock I like to buy whenever we get a market sell-off.
Grade: A
Estimates: Earnings- $0.33/share; Revenue- $2.54 billion Estimize (Ranking 14/205).
Disclosure: Cresco Investments is long Salesforce.com (Stock Ticker: CRM).
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.
