Salesforce A 'Core' SaaS Holding

With salesforce.com, inc. CRM reporting robust Q3 results and guiding to a solid Q4, Citi’s Walter H. Pritchard believes the weakness in Q2 was more due to a lapse in execution rather than a fundamental slowdown.

Pritchard maintains a Buy rating on the company, while raising the price target from $89 to $95.

Solid Execution

Billing grew 21 percent year-on-year in Q3:17, well above the estimate and consensus, due to solid execution and large deal strength, especially financial services.

Unbilled backlog stood at $8.6 billion, with implied new business growth of 16 percent year on year. Both metrics point to robust growth, Pritchard noted.

Total revenue came in at $2.14 billion, ahead of expectations, while the EPS of $0.24 was also well ahead of the estimate and consensus.

Profitability was also better than anticipated, with operating margin of 12.7 percent, driven by higher revenue and marginally lower than expected S&M.

Guidance

Salesforce.com guided to 21–23 percent billings growth for Q4, well ahead of the previous estimate. While the revenue guidance was also ahead of expectations, EPS was in line.

The company expects revenue of more than $10 billion in FY 2018, continuing the trend of growth of more than 20 percent.

“While bigger M&A questions may persist, we think combination of growth at scale and steadily improving margins at a reasonable valuation makes CRM a core SaaS holding,” Pritchard went on to say.

In Friday's pre-market session, salesforce.com was seen up 6.8 percent at $75.19.