Salesforce.com "Needs Large Deals to Return to Form," Wedbush Says, Reiterates Neutral, Previews Earnings

In a report published Monday morning, Wedbush analyst Steve Koenig reiterated a Neutral rating and a $58 price target on Salesforce.com Inc CRM. According to the note, the 12-month upside for the company “looks fairly limited (…) unless the company can sustain a (constant-currency) growth rate in the mid-20% range for new business (e.g. in billings, bookings, and commissions),” well above Wedbush’s outlook.

The research firm ran some partner checks, and arrived to interesting conclusions. However, none of them changed its outlook (in constant-currency terms). “As in prior quarters, the majority of activity (and incremental revenue) is coming from Sales Cloud, followed by Service Cloud. We heard from several contacts that CRM’s new Communities product is getting traction, some of it from existing Portal customers who need to migrate. Also, Integrators are seeing good activity with Pardot (B2B marketing), but the benefit to CRM appears more limited, as much of this activity involves adding Pardot as a relatively low-cost B2B marketing feature for Sales Cloud deployments. We heard reports that CRM has moved to cut down on the number of ET resellers, perhaps to generate greater direct sales and margin for the company.”

The analysts also commented on the upcoming earnings call, to take place on February 25, after market close. They say they think that Salesforce has probably guided with room to beat, at least on the top line, as usual – thus, a beat should be expected. Some metrics to watch (which should show year-over-year improvements) are billings, bookings, and deferred commissions. Nonetheless, Wedbush thinks “this expectation is largely factored into the CRM shares at current levels.”

The firm now expects EPS of $0.15 for the fourth quarter of fiscal 2015, versus consensus of $0.14, and full year earnings of $0.53 per share, once again, one cent above consensus. For fiscal 2016, earnings are projected at $0.70 per share (down from a pervious $0.71, due to FX impacts, but above the $0.69 consensus).