Salesforce Will Report Earnings After the Bell

Analysts are looking for solid top and bottom line performance when Salesforce CRM reports earnings after the market closes on Thursday. The maker of customer management systems using the SaaS model (software-as-a-service) and cloud based technology has become a bellwether stock in the technology space—joining others like Apple AAPL, Google GOOG and Zynga ZNGA (OK, probably not Zynga).

Here’s your CRM Cheat sheet:

Expectations

Analyst consensus sets Non-GAAP EPS at $0.40 ex items with revenues of $825 to $830 million. Thomson Reuters reports analyst consensus at $830.8 million—a 31 percent increase year-over-year. First quarter revenue is expected to rise 27 percent to $885.9 million with earnings per share of $0.42 ex items.

Analysts Commentary

UBS UBS said, “We believe CRM finished FY13 (Jan.) on a solid note despite buffeting winds of Hurricane Sandy, U.S. fiscal cliff, and continued global macro uncertainty. As we wrote in our 2013 Software Playbook (1/7/13), we see SaaS becoming the default choice of enterprise buyers for most applications. As a by-product, we expect ELAs to become more common and believe CRM signed a large volume of multi-product deals in FQ4. CRM remains 1 of our favorite large cap growth ideas."

William Blair’s Laura Lederman said in a note that demand remains strong for the company with new products gaining traction and middle markets becoming a more robust revenue source.

The Bear Case

Investors should smell a rat (or bear) in this set up. First, in order to make the celebrated progress in growth metrics, the company invested heavily in acquiring new customers. This could drag on earnings both for the fourth and first quarter more than analysts think.

Second, investors know that when the story is overwhelmingly positive, often, the great news, assuming it is great, is already priced into the stock. Unless the numbers are significantly better than expectations, the stock could sell off. Even worse, expect a sizable move to the downside if the announcement disappoints. This priced-to-perfection setup doesn’t present a favorable risk/reward profile.

Technicals

Despite an ascending channel that resulted in gains of more than 37 percent, the stock has pulled back as of late—down nearly 6 percent since it tested and failed its upper trend line and later formed a double top only to selloff severely. The stock is well below its 20- and 50-day moving average. CRM staged a rebound off of its recent lows but sell volume is low suggesting the move has little conviction.

Collateral Effects

Stocks in the same space as Salesforce are likely to move based on Thursday’s announcement. Watch these names: Oracle ORCL, SAP SAP and Workday WDAY, a mid cap. stock that went public in October. The stock is up almost 15 percent since its IPO.