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Salesforce Q3 Earnings on Deck: Can CRM Stock Reach New Highs?

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Salesforce (CRM - Free Report) is set to report its third quarter financial results after the closing bell on Tuesday, December 3. The company has seen its shares rise 18% in 2019 but it has lagged behind the broader software market’s 41% run.

Investors have been enthusiastic about the growth runway Salesforce has in its cloud-based customer relationship management software. As more enterprises transition to cloud-based data, companies like Salesforce have the opportunity to garner a large chunk of that business. On top of that, Salesforce recently held its Dreamforce event, which gave investors better insight into the company’s trajectory.

Dreamforce Conference

Salesforce wrapped up its Dreamforce conference last week as it hosted customers, partners, and key stakeholders at a week-long event. Dreamforce’s conferences and sessions provided valuable insight for investors about the company’s operations and how it plans to conduct its business in the new digital era.

During the Dreamforce conference, Salesforce announced that it expects to generate $34 billion to $35 billion in revenue for fiscal 2024. This implies a growth rate of about 20% annually, which is impressive considering it is roughly double the $17 billion the company expects to bring in fiscal 2020?

Earlier this year the company forecasted revenue of $26 billion to $28 billion for fiscal 2023, which would be roughly double the $13.3 billion it achieved in fiscal 2019. Salesforce executives also announced that its acquisition of MuleSoft was finally starting to come together.

The company introduced Accelerators, which allow customers to integrate data from outside sources directly with Salesforce Service Cloud and Salesforce Commerce Cloud. The firm also debuted the Flow Designer that allows users to navigate a smart integration platform instead of writing complex code to unlock the legacy system data.

These two new programs unveiled at Dreamforce integrates MuleSoft’s capabilities into Salesforce’s operations, which bodes well for investors who were hesitant about the acquisition.

Outlook

The projections that Salesforce shared with its event attendees was definitely encouraging and its 26% and 25% revenue growth rates in fiscal 2019 and 2018, respectively, attest to the company’s ability to deliver on its new target. To drive top-line growth and to better equip itself for the expected cloud computing shift, Salesforce has made a series of acquisitions that have weighed on its margins.

However, management has indicated that the acquisitions would likely slow for the time being as Salesforce works to integrate Tableau Software into its ecosystem. Salesforce has also taken stakes in other smaller companies like Dropbox (DBX - Free Report) , SVMK (SVMK - Free Report) , and Zoom Video (ZM - Free Report) that can better expand its reach in the tech industry. Salesforce is already a titan in the CRM space as the next three largest CRM competitors combined don’t match Salesforce’s market share.

Our Q3 consensus estimates forecast earnings to grow 8.2% to $0.66 per share and for sales to reach $4.44 billion for a 30.79% rally. Subscription and support is projected to bring in $4.15 billion for a 30.9% hike.

Looking ahead to the firm’s full fiscal year figures, earnings are anticipated to pop 3.64% to $2.85 per share and revenue is projected to rally 27.7% to $16.96 billion.

Our fiscal 2021 estimates call for top-line growth off 22.8%, which would be on target with Salesforce’s new 2024 forecast.

Takeaway

The tech giant’s acquisitions and the way Salesforce has been able to integrate the capabilities of the acquired firms into its own operations is a good sign moving forward. Salesforce is certainly not cheap as it trades 57X its forward earnings, which might discourage many investors.

Additionally, the company is not immune to volatility, which could weigh on the business’ short-term operations. However, this doesn’t seem to be a company with its sights set on short-term success as it is gearing up for a major secular shift towards the cloud.

Salesforce is currently trading around 3.4% below its 52-week high of $167.56 per share and a strong Q3 report, with encouraging forward guidance, could potentially send it to new highs and close the gap with the broader software market.

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