Salesforce Q2 Results A 'Speedbump' To $20 Billion, Says Morgan Stanley

salesforce.com, inc. CRM reported disappointing Q2 billings due to “shaky execution,” currency headwinds and increasing seasonality, Morgan Stanley’s Keith Weiss said in a report. He maintained an Overweight rating on the company, while reducing the price target from $110 to $107.

Missing Already Low Expectations

After having reported stronger-than-expected Q1 results, Salesforce’s y/y billings growth trajectory seems to have “hit a speed bump” in Q2, having slumped from 31 percent to 15 percent, analyst Weiss mentioned.

Management indicates several reasons for the slowing, including rising FX headwinds, increasing seasonality in the overall subscription business, and weakness in US.

Not A Trend

Although the slowdown in Q2 billings growth was both unexpected and disappointing, the performance of one quarter cannot be termed as a trend, Weiss noted. He added that a broader analysis indicated:

1. Multiple growth engines gaining market share
2. Continued growth of a massive potential opportunity, estimated at $165 billion, as the company brings new innovation to the market
3. An expanding distribution ecosystem, highlighted by growing SI investment around the platform

The EPS estimates for FY18 and FY19 have been reduced from $0.74 to $0.72 and from $1.18 to $1.15, respectively. The analyst added, “We still find ample support for our long-term view and would look to any pullback as an opportunity to build positions in the preeminent secular growth story in software.”

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