Salesforce Expected To Meet Low Expectations For Q3

Ahead of salesforce.com, inc. CRM third-quarter earnings announcement on November 17, MKM Partners expect billings of 13 percent growth on a year-over-year basis at $1.724 billion, which is ahead of the 12 percent outlook. However, the growth rate is expected to decelerate from 15 percent in the second quarter, which was also a disappointing one, but should come in line with the low expectations.

Thesis Support

Analyst Kevin Buttigieg cited three key factors for this thesis:

1. The weakening Great Britain pound.
2. Lower transaction data.
3. Increasing seasonality.

These factors would also be appropriate for expecting fourth quarter billings growth outlook. The consensus calls for 23 percent uptick.

Rating And Justification

In a research note, the brokerage stated, “As CRM does more billings in F4Q (43 percent of annual billings in F4Q16 vs. 40 percent in F4Q12), there is a tendency to do less in the other three fiscal quarters. As a result, CRM has had a tendency to outperform consensus billings in F4Q and less so in other quarters, with F1Q17 being the exception we think due to the price increase.”

Pointing out that in-line forecast would not prove to be a catalyst for salesforce.com shares, MKM Partners thinks there will not be any major changes in the fiscal year billing growth rate of 20 percent.

Therefore, the analyst retains his Buy rating and the target price of $93.00, implying a greater than 25 percent upside potential from current levels.

At last check, the stock traded down 2.49 percent to $72.73.