Salesforce Unlikely To Buy Twitter, Shares Likely To Tread Water Until M&A Concerns Lifted

Karl Keirstead of Deutsche Bank says the comments from salesforce.com, inc. CRM at its financial analyst day imply it's unlikely to buy Twitter Inc TWTR. However, the analyst noted that shares are likely to "tread water" until the M&A overhang is lifted.

Salesforce, while saying it will pursue a "disciplined" approach on M&A, noted that extracting value from data sets of LinkedIn and Twitter can be achieved via product integration, that it's "not a matter of ownership."

The analyst pointed that Salesforce's comments reduce the likelihood of a Twitter deal.

Related Link: Exclusive: Salesforce's Largest Holder Does Not Want Company To Buy Twitter

"If the Twitter concerns go away and 4QF17 starts to look solid, this negative sentiment weighing on CRM shares could turn quickly," Keirstead wrote in a note.

On the fundamental front, the company "blessed" the Street outlook for $10 billion in revenue in FY18 (requiring growth of 22 percent, down from 26 percent in FY17) and reaffirmed that it will be a 20 percent revenue growth story "for the foreseeable future."

Salesforce also indicated it should return to its target operating margin improvement range of +100-300bps in FY18, after dipping below this range this fiscal year due to acquisitions.

"We view these statements as modestly incremental," Keirstead continued.

Further, the analyst welcomed the positive statement from the company, which called the end-of-July softness a "blip" due to some execution issues that they've now addressed.

"We continue to believe that the CRM demand backdrop is relatively healthy and that the likelihood of a solid 4QF17 DR print is fairly high, in part as invoicing seasonality and larger deals skew DR to 4Q, issues that likely contributed to the weak 3QF17 DR guidance," Keirstead added.

Keirstead reaffirmed his Buy rating and price target of $90, which implies potential upside of 24 percent over Oct.4 close.

At time of writing, shares of Salesforce fell 7.56 percent to $67.14.