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It has been a little over a month since the last earnings report for Salesforce (CRM - Free Report) and investors have to be disappointed. The stock has easily underperformed the market since its report, and the market has been pretty strong overall too.
Will the recent negative trend continue leading up to their next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Salesforce Sees Strong Q3 Earnings; Lifts Outlook
Salesforce reported impressive results for the third quarter of fiscal 2017. The world’s leading CRM platform provider’s top and bottom line results marked a strong year-over-year improvement. Also, above expected revenue forecasts for the current quarter as well as fiscal 2017 and fiscal 2018 also boosted investors’ confidence over the stock’s future performance.
For the third quarter, the company reported adjusted earnings (including stock-based compensation but excluding all one-time items on a proportionate tax basis) of $0.03 per share, better than breakeven results reported in the year-ago quarter. Moreover, Salesforce’s adjusted earnings were in line with the Zacks Consensus Estimate.
On a GAAP basis, Salesforce reported a loss per share of $0.05 per share compared with a loss of $0.04 per share in the third quarter of fiscal 2016. However, on a non-GAAP basis, the company posted earnings of $0.24 per share compared with $0.21 per share reported in the year-ago quarter. The robust performance was mainly driven by strong top-line growth.
Quarter in Detail
Salesforce’s revenues of $2.145 billion not only increased 25.3% year over year, but also beat the Zacks Consensus Estimate of $2.116 billion. Moreover, reported revenues came above management’s guided range of $2.11 billion to $2.12 billion. The improvement is primarily attributable to rapid adoption of the company’s cloud-based solutions.
Also, higher demand for the Salesforce ExactTarget Marketing Cloud platform, a part of the Salesforce1 Customer Platform, drove the year-over-year upside in revenues.
Among its business segments, revenues at Subscription and Support surged about 24.3% from the year-ago quarter to $1.984 billion. Professional Services and Other revenues jumped almost 39% to $160.8 million.
Salesforce’s adjusted gross profit (including stock-based compensation but excluding amortization expenses) came in at $1.596 billion, up 22%. However, gross margin contracted 200 basis points (bps) to 74.4%, primarily due to increased investment in infrastructure development, including the expansion of the international data center.
Adjusted operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 24.7% from the year-ago quarter to $1.528 billion. This was primarily because of higher investments in research and development, marketing and sales, and general and administrative activities. However, as a percentage of revenues, operating expenses contracted 30 bps to 71.3%.
Salesforce posted adjusted operating income (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $67.8 million compared with the year-ago figure of $82.7 million, while operating margin contracted 160 bps to 3.2%. The year-over-year contractions in adjusted operating income and margin were mainly due to higher cost of revenues, which were partially offset by efficient operating expenses management.
Guidance
Buoyed by strong third quarter performance, the company raised its revenues and non-GAAP earnings outlook for fiscal 2017. Revenues are now anticipated to come in the range of $8.365 billion to $8.375 billion (mid-point $8.37 billion), up from the previous projection of $8.275 billion to $8.325 billion (mid-point $8.30 billion), representing a 25–26% year-over-year increase. Salesforce now projects non-GAAP earnings to come between $0.97 per share and $0.98 per share, down from the earlier guidance range of $0.93 per share to $0.95 per share.
For the fourth quarter, the company provided encouraging outlook. Salesforce projects fourth-quarter revenues between $2.267 billion and $2.277 billion, representing a 25% to 26% year-over-year increase. The company expects non-GAAP earnings per share in the $0.24–$0.25 per share band. On a GAAP basis, it projects loss per share in the range of $0.09 per share to $0.10 per share.
Apart from this, Salesforce provided revenue outlook for fiscal 2018. The company anticipates that its target of $10 billion in revenues will be achieved in fiscal 2018. For the fiscal, the company projects revenues in the range of $10.1 billion to $10.15 billion.
How have estimates been moving since then?
Following the release, investors have witnessed a downward trend for fresh estimates. There has been one revision higher for the current quarter compared to six lower for the current quarter. Meanwhile, the full year estimate has also seen more revisions lower than higher, albeit in a more mixed picture overall.
At this time, Salesforce stock has a strong Growth score of 'A', though it is lagging a lot on the momentum front with an 'F'. Much like its momentum score, the stock was allocated also a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, stocks has an aggregte VGM score of 'D'. So the stock isn't looking great from a broad fundamental perspective right now.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions hasn't been too bad and it has kept the consensus estimate relatively flat overall. Due to this lack of movement, shares of CRM have managed to hold on to a Zacks Rank # 3 (hold), so we are expecting an in-line return from CRM in the next few months, though its weak fundamental grade is definitely concerning.
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Can Salesforce (CRM) Stock Rebound to Start 2017?
It has been a little over a month since the last earnings report for Salesforce (CRM - Free Report) and investors have to be disappointed. The stock has easily underperformed the market since its report, and the market has been pretty strong overall too.
Will the recent negative trend continue leading up to their next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Salesforce Sees Strong Q3 Earnings; Lifts Outlook
Salesforce reported impressive results for the third quarter of fiscal 2017. The world’s leading CRM platform provider’s top and bottom line results marked a strong year-over-year improvement. Also, above expected revenue forecasts for the current quarter as well as fiscal 2017 and fiscal 2018 also boosted investors’ confidence over the stock’s future performance.
For the third quarter, the company reported adjusted earnings (including stock-based compensation but excluding all one-time items on a proportionate tax basis) of $0.03 per share, better than breakeven results reported in the year-ago quarter. Moreover, Salesforce’s adjusted earnings were in line with the Zacks Consensus Estimate.
On a GAAP basis, Salesforce reported a loss per share of $0.05 per share compared with a loss of $0.04 per share in the third quarter of fiscal 2016. However, on a non-GAAP basis, the company posted earnings of $0.24 per share compared with $0.21 per share reported in the year-ago quarter. The robust performance was mainly driven by strong top-line growth.
Quarter in Detail
Salesforce’s revenues of $2.145 billion not only increased 25.3% year over year, but also beat the Zacks Consensus Estimate of $2.116 billion. Moreover, reported revenues came above management’s guided range of $2.11 billion to $2.12 billion. The improvement is primarily attributable to rapid adoption of the company’s cloud-based solutions.
Also, higher demand for the Salesforce ExactTarget Marketing Cloud platform, a part of the Salesforce1 Customer Platform, drove the year-over-year upside in revenues.
Among its business segments, revenues at Subscription and Support surged about 24.3% from the year-ago quarter to $1.984 billion. Professional Services and Other revenues jumped almost 39% to $160.8 million.
Salesforce’s adjusted gross profit (including stock-based compensation but excluding amortization expenses) came in at $1.596 billion, up 22%. However, gross margin contracted 200 basis points (bps) to 74.4%, primarily due to increased investment in infrastructure development, including the expansion of the international data center.
Adjusted operating expenses (including stock-based compensation but excluding amortization of acquisition-related intangibles) increased 24.7% from the year-ago quarter to $1.528 billion. This was primarily because of higher investments in research and development, marketing and sales, and general and administrative activities. However, as a percentage of revenues, operating expenses contracted 30 bps to 71.3%.
Salesforce posted adjusted operating income (including stock-based compensation but excluding amortization of acquisition-related intangibles) of $67.8 million compared with the year-ago figure of $82.7 million, while operating margin contracted 160 bps to 3.2%. The year-over-year contractions in adjusted operating income and margin were mainly due to higher cost of revenues, which were partially offset by efficient operating expenses management.
Guidance
Buoyed by strong third quarter performance, the company raised its revenues and non-GAAP earnings outlook for fiscal 2017. Revenues are now anticipated to come in the range of $8.365 billion to $8.375 billion (mid-point $8.37 billion), up from the previous projection of $8.275 billion to $8.325 billion (mid-point $8.30 billion), representing a 25–26% year-over-year increase. Salesforce now projects non-GAAP earnings to come between $0.97 per share and $0.98 per share, down from the earlier guidance range of $0.93 per share to $0.95 per share.
For the fourth quarter, the company provided encouraging outlook. Salesforce projects fourth-quarter revenues between $2.267 billion and $2.277 billion, representing a 25% to 26% year-over-year increase. The company expects non-GAAP earnings per share in the $0.24–$0.25 per share band. On a GAAP basis, it projects loss per share in the range of $0.09 per share to $0.10 per share.
Apart from this, Salesforce provided revenue outlook for fiscal 2018. The company anticipates that its target of $10 billion in revenues will be achieved in fiscal 2018. For the fiscal, the company projects revenues in the range of $10.1 billion to $10.15 billion.
How have estimates been moving since then?
Following the release, investors have witnessed a downward trend for fresh estimates. There has been one revision higher for the current quarter compared to six lower for the current quarter. Meanwhile, the full year estimate has also seen more revisions lower than higher, albeit in a more mixed picture overall.
SALESFORCE.COM Price and Consensus
SALESFORCE.COM Price and Consensus | SALESFORCE.COM Quote
VGM Scores
At this time, Salesforce stock has a strong Growth score of 'A', though it is lagging a lot on the momentum front with an 'F'. Much like its momentum score, the stock was allocated also a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, stocks has an aggregte VGM score of 'D'. So the stock isn't looking great from a broad fundamental perspective right now.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions hasn't been too bad and it has kept the consensus estimate relatively flat overall. Due to this lack of movement, shares of CRM have managed to hold on to a Zacks Rank # 3 (hold), so we are expecting an in-line return from CRM in the next few months, though its weak fundamental grade is definitely concerning.
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