Salesforce Tops Q3 Estimates, Lifts FY18 Revenue View

Salesforce headquarters - photo - December 2017A swing to profit in the third-quarter of fiscal 2018 and a 25% y-o-y rise in revenues enabled the stock of cloud computing company Salesforce Inc (NYSE: CRM) record a yearly high of $109.19 last week. The company also raised its fiscal 2018 revenue guidance, while reaffirming fiscal 2019 revenue outlook. Notably, Salesforce has raised revenue guidance for four consecutive quarters and surpassed analysts estimates for 10 quarters in a row. The operating margins have consistently improved during the past five years. On the basis of an increase in deferred revenue, strong 4Q18 revenue guidance, and raised FY18 revenue view, we forecast the uptrend to continue in the days ahead.

For the third-quarter of fiscal 2018, the San Francisco-based company reported a swing to net profit of $51.39 million, or $0.07 per share, from a net loss of $37.31 million, or $0.05 per share, in the third-quarter of fiscal 2017. Aided by an improvement in the Subscription and Professional services, Salesforce recorded 3Q18 revenues of $2.68 billion, an increase from $2.14 billion in 3Q17.

Excluding amortization of intangibles, stock-based expenses, and income tax adjustments, among others, the non-GAAP net income for the quarter ended October 31, 2017 was $2.84 billion, or $0.39 per share, compared with $1.71 billion, or $0.24 per share in the year-ago quarter. Analysts had expected Salesforce to report earnings of $0.37 per share on revenues of $2.65 billion.

Subscription and support services recorded 3Q18 revenue of $2.48 billion, an increase from $1.98 billion in the year-ago quarter, and topped analysts’ estimates of $2.45 billion. Professional services posted revenue of $193.71 million, compared with $160.79 million last year, but missed analysts’ estimates of $201.40 million.

Salesforce’ deferred revenue grew by 26% to $2.25 billion and above analysts’ estimates of $2.02 billion. The unbilled deferred revenue increased by 34% to $11.5 billion. The company’s Sales Cloud business (Salesforce automation software) revenue increased 17% to $906.50 million. Service Cloud business (customer service software) generated revenue of $738.1 million in the Q3 2018, up 21% from the corresponding quarter last year. It can be remembered that Salesforce has ventured into artificial intelligence by launching a project named Einstein, after acquiring Quip in 2016.

Going ahead, the company expects Q4 earnings per share in the range of $0.32 to $0.33 on revenues of between $2.801 billion and $2.811 billion. Analysts forecast an earnings of $0.34 per share on revenues of $2.79 billion. For fiscal 2018, the company raised its revenue outlook to a range of $12.45 billion to $12.50 billion, from the prior guidance range of $10.43 billion to $10.44 billion. Thus, a swing to profit, strong growth in revenues, an increase in deferred revenue, and upwardly revised FY18 revenue outlook is expected to keep the stock bullish.

The stock is trading above its 50-period moving average. Further, the stochastic oscillator is in the oversold region. Thus, we forecast a continuation of the current uptrend.

Salesforce - Technical Analysis - 4th December 2017

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