Oppenheimer Says Salesforce's Q2 Just A Transitory Quarter, Not A Harbinger Of Doom

Shares of salesforce.com, inc. CRM were trading lower by more than 6 percent on Thursday as some investors seemed to think a deceleration in the U.S. business implies an abrupt end to its growth story.

Brian Schwartz of Oppenheimer certainly isn't in that camp. In a research report the analyst argued that while salesforce's deceleration across most financial metrics "will weigh on the growth story," the earnings print are not a "harbinger of bad things to come."

Positives

Schwartz continued that "most of the issues" Salesforce reported were unique to its second quarter and are also transitory. The analyst also highlighted six positives, including:

1. An upcoming catalyst in the Dreamforce conference.
2. A new nine-digit transaction was closed for the third straight quarter.
3. Europe grew 30 percent-plus on a currency constant basis for the third straight quarter.
4. Management raised its revenue guidance despite a foreign exchange headwind of up to $150 million.
5. Non-sales cloud represented 60 percent of subscriptions revenue mix, marking a record high.
6. The company has now gone nine straight quarters with a reported expansion in its operating margin year-over-year.

Related Link: Salesforce Billing Slowdown Hardly A Cause For Panic

Negatives

However, there are some negative factors that investors need to be aware, including:

1. Second-quarter billings growth of 15 percent and implied third quarter growth of 12 percent are the slowest the company has seen since the the recession.
2. Deferred commissions were flat year-over-year.
3. Fiscal 2017 OCF growth was lowered by 200 basis points.
4. Backlog and deferred revenue growth (excluding Demandware) fell to mid-20 percent growth from a prior upper 20 percent/30 percent range.

Nevertheless, Schwartz stated that salesforce is indeed heading to a "stronger position for share gains and monetization activity."

As such, salesforce remains "one of the healthiest long-term growth stories" within the SaaS/applications software universe. Shares were maintained with an Outperform rating with an unchanged $95 price target.

At time of writing, shares of salesforce were down 4.91 percent on Thursday at $75.52.

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