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Salesforce Q2 Earnings - What To Expect

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Salesforce.com (NYSE: CRM) will report its second quarter results after Thursday's market close.

Salesforce reported its first quarter results on May 20. The company earned $0.11 per share, beating analyst expectations by a penny. Revenue of $1.23 billion came in $20 million more than expected.

During the first quarter, the company maintained an elevated level of spending. Sales and marketing spend was 37 percent higher than it was a year ago at $639.4 million, R&D expenses were 43 percent higher at $188.4 million, while G&A expenses were 25 percent higher at $152.1 million. In addition, capital expenditure during the quarter totaled $60.1 million.

Despite the elevated spending, Salesforce managed to increase its free cash flow by 80 percent year over year to $413 million.

Salesforce guided its second quarter earnings per share to be $0.11 to $0.12 on revenue of $1.285 billion to $1.29 billion.

Oppenheimer: Growth outperformance expected

Brian Schwartz of Oppenheimer believes that Salesforce is well positioned for growth that could outpace the industry average. To support this view, the analyst notes that numerous discussions with industry contacts support a strong business activity and strong pipeline expansion over the past three months.

"The biggest shift detected was consensus commentary suggesting monetization of ExactTarger is picking up as customers on both sides (ExactTarget and Salesforce) are more inclined to purchase products from Salesforce now that it has demonstrated ExactTarget's technology viability," Schwartz wrote on August 19.

Schwartz adds that several large Sis reported that Salesforce's enterprise positioning has improved since its announced Microsoft partnership in the quarter.

Bottom line, shares are attractive and are currently trading at 29 times EV/FTM OCF basis to the SaaS group average of 35 times. In addition to being undervalued, Salesforce operates a much larger total addressable market and an impressive organic revenue growth of 25 percent.

Schwartz is projecting Salesforce will earn $0.12 in the second quarter on revenue of $1.29 billion.

Shares are Outperform rated with a $71 price target.

Related Link: Dan Nathan's Salesforce Trade Ahead Of Earnings

Deutsche Bank: Positive checks confirm solid quarter

Karl Keirstead of Deutsche Bank reached out to industry contacts to get a better sense of recent business developments and how it could affect Salesforce's earnings in the coming quarter.

According to Keirstead's checks, Salesforce's momentum and deal pipeline remains strong. In addition, there has been no material change in deal sizes as demand was strong with "none of the usual summer slowdown."

"Given this commentary, we suspect that the quarter will be solid, but not blowout," Keirstead wrote in a note to clients on August 10. "We heard that Salesforce has a ‘major emphasis' on its vertical industry plan, the Service Cloud and a ‘solutions' sale (cross-selling the suite or broader platform). We heard that pricing is ‘business as usual.'"

Keirstead also adds that Salesforce's new President Keith Block has made a "material impact" and is doing "an excellent job driving growth and making results more predictable."

Keirstead notes that investor consensus for organic billings growth is approximately 22 percent to 24 percent. Shares are projected to rise if the company announces 25 percent organic growth, while the analyst is projecting 26 percent growth.

Shares are Buy rated with a $65 price target.

Bank of America: Favorite large-cap growth idea

Kash Rangan of Bank of America believes that Salesforce is a top large-cap growth idea heading in to the bottom half of the year given the fact that Salesforce has several $10 billion drivers head, including platform and enterprise.

To support this thesis, Rangan notes that Salesforce currently has an approximate 10 percent penetration in a $10 billion market. Salesforce's service at $1.2 billion is also under-penetrated at 10 percent in a $13 billion market. Marketing at a $500 million run rate is also under-penetrated at five percent in a $11 billion market.

In addition, Salesforce has pricing leverage as many long term deals coming out of the recession at discounted rates could be renewed at higher prices. Some of these deals at enterprises with more than 2,000 employees is a $13 billion opportunity for Salesforce to pursue, while small-to-medium-size business is a $17 billion opportunity.

Rangan warns investors that the key metric to watch out during the second quarter results is billings and that second quarter revenues by product disclosure should provide visibility into growth rates.

Looking forward down the road, Rangan believes that Salesforce will reiterate long-term margin and growth targets set by the company's newly hired Chief Financial Officer Mark Hawkins.

Shares are Buy rated with a $73 price target.

Latest Ratings for CRM

DateFirmActionFromTo
Sep 2014BarclaysMaintainsOverweight
Aug 2014Deutsche BankMaintainsBuy
Aug 2014UBSMaintainsBuy

View More Analyst Ratings for CRM
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