Technology

Are Analysts Too Optimistic on Salesforce After Earnings?

Chris Lange

Published: December 4, 2019 11:10 am

Last Updated: March 13, 2020 4:34 pm

Salesforce.com Inc. (NYSE: CRM) released fiscal third-quarter financial results after markets closed Thursday. Although investors sent shares lower in the wake of this report, analysts seem to have taken a different tack and are cheering these results.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying after the fact.

The cloud-based software firm said that it had $0.75 in earnings per share (EPS) and $4.5 billion in revenue. That compared with consensus estimates of $0.66 in EPS and $4.45 billion in revenue, as well as the $0.61 in per share and $3.39 billion posted in the same period of last year.

During the latest quarter, revenues grew 33% year over year and 34% in constant currency. Subscription and support revenues were $4.24 billion, an increase of 34%. Professional services and other revenues increased by 22% to $274 million.

Looking ahead to the fiscal fourth quarter, the company expects to see EPS in the range of $0.54 to $0.55 and revenue between $4.743 billion and $4.753 billion. Consensus estimates call for $0.62 in EPS and $4.72 billion in revenue for the quarter.

Credit Suisse reiterated an Outperform rating and raised its price target to $185 from $175. The firm described its reasoning:

The outperformance was broad based with notable strength in Sales Cloud, Federal, and MuleSoft helping drive +22% y/y organic constant currency current RPO growth. The quarter also benefited from early renewals originally expected to land in 4Q which skews F3Q/F4Q cRPO and bookings. FY20 and FY21 revenue guidance was reiterated from analyst day and the company continues to deliver organic operating margins greater than +150bps y/y. We continue to appreciate CRM’s position in enabling Digital Transformation across all verticals and see this as a sustainable growth driver over the medium to long term.

Merrill Lynch reiterated a Buy rating with a $200 price objective, noting that by practically any meaningful measure, all key metrics were strong.

Wedbush reiterated an Outperform rating with a $192 price target. The boutique investment firm pointed out that while investors may be disappointed with guidance, Wedbush is not concerned about these secondary guidance elements, which reflect expenses associated with the fourth quarter Dreamforce conference, pull-forward of fourth-quarter renewals into the third quarter, and likely conservatism concerning Tableau’s license seasonality.

A few other analysts weighed in on Salesforce following the report:

• William Blair reiterated an Outperform rating.
• Oppenheimer reiterated a Buy rating and a $190 price target.
• Canaccord Genuity reiterated a Buy rating and a $185 target.
• Cowen reiterated a Buy rating with a $195 target price.
• Morgan Stanley reiterated it as Overweight and raised its target to $197 from $180.
• Barclays reiterated a Buy rating with a $189 price target.
• UBS reiterated a Buy rating and has a $190 target price.
• Needham reiterated its Hold rating.
• Northland reiterated a Buy rating with a $185 price target.
• BMO Capital Markets reiterated it as Outperform and raised its target to $190 from $188.
• JPMorgan reiterated it with a Buy rating and a $200 price target.
• Goldman Sachs reiterated a Buy rating with a $191 price target.

Shares of Salesforce traded down about 3% to $156.96 on Wednesday, in a 52-week range of $120.16 to $167.56. The consensus price target is $189.20.