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Salesforce (CRM) to Post Q3 Earnings: What's in the Cards?

Read MoreHide Full Article Inc. (CRM - Free Report) is slated to release third-quarter fiscal 2019 results on Nov 27.

Notably, Salesforce delivered a positive earnings surprise in the trailing four reported quarters, the average being 30.85%.

In the last reported quarter, the company delivered non-GAAP earnings of 71 cents per share, which comprehensively beat the Zacks Consensus Estimate of 47 cents. The bottom line also improved more than twofold from the year-ago quarter’s figure of 33 cents.

Revenues of $3.28 billion rose 27% year over year and surpassed the Zacks Consensus Estimate of $3.23 billion. Revenues grew 27% at constant currency (cc). The rapid adoption of the company’s cloud-based solutions led to the better-than-expected results.

What to Expect in Q3

For the to-be-reported quarter, revenues are projected between $3.355 billion and $3.365 billion, indicating an increase of 24-25% year over year. Non-GAAP earnings are expected in the range of 49-50 cents per share.

The Zacks Consensus Estimate for earnings in the fiscal third quarter is pegged at 50 cents, reflecting a year-over-year rise of 28.2%. The Zacks Consensus Estimate for sales of $3.37 billion indicates around 25.7% growth from the prior-year period.

So, let’s see how things are shaping up prior to this announcement.

Factors at Play

Salesforce’s diverse cloud offerings, expanding partner base and a considerable spending on digital marketing are key growth drivers.  The company’s strategy of frequent product launches and cloud services are helping it expand clientele, thereby driving top-line growth.

Additionally, acquisitions have always been one of Salesforce’s chief growth schemes, thus strengthening the company’s position in the customer relationship-management solution-providing space.

Notably, the company’s acquisition of MuleSoft is a major positive. The buyout has added an impressive integration platform to its portfolio and is off to a flying start. The MuleSoft Anytime platform is gaining momentum among consumers for digital transformation. Moreover, the acquisition of Datorama is another upside.

Salesforce has also been keen on building partnerships to expand its international operations. Partnership agreements with the likes of Amazon (AMZN - Free Report) and Alphabet for the firm’s cloud services have been helping it extend its international presence. Notably, in the last reported quarter, the company won several deals owing to its global-expansion initiatives. The company is most likely to continue winning overseas deals, which might drive its upcoming quarterly results as well.

At its Dreamforce conference held this year, the company unveiled advancements, productivity and artificial intelligence (AI) platform services besides its key strategic partnerships, which are expected to help companies connect with their clients in new ways.

Notably, Salesforce is performing well across industries, particularly in healthcare and financial services. The launch of Health Cloud for Payers is projected to keep the momentum alive in healthcare.

However, stiff competition from Microsoft (MSFT - Free Report) and Oracle (ORCL - Free Report) in the cloud-based CRM market poses a huge threat to the stock.

Moreover, foreign exchange volatility remains a key concern for the company. The company anticipates currency fluctuation to have a negative impact on its revenues for the remainder of the year.

What Our Model Says                                                                               

Our proprietary Zacks methodology Zacks model clearly shows that a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has considerable chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Salesforce currently has a Zacks Rank #3 and an Earnings ESP of 0.00%. Thus, the combination makes surprise prediction difficult for the stock.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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