Salesforce's Strong Quarter Buoyed By Rebound In Billings Growth

Raimo Lenschow of Barclays said the main highlight of salesforce.com, inc. CRM’s blow-out third-quarter results is a rebound in billings growth, as it alleviated the investors concerns after a shaky second quarter and tepid billings guidance for third quarter.

Quarter Highlights

Following are the key highlights of salesforce’s third-quarter print:

• Q3 revenue/EPS of $2.14 billion/$0.24, topped consensus of $2.12 billion/$0.21.
• Billings rose 20 percent to $1.82 billion, beat consensus view of $1.72 billion.
• Guides Q4 revenue at $2.267 billion–$2.277 billion, above consensus of $2.24 billion.
• Sees Q4 EPS at $0.24–$0.25, slightly below consensus of $0.25 at the midpoint.
• Raises FY 2017 revenue guidance to a range of $8.365 billion–$8.375 billion from $8.275 billion–$8.325 billion and EPS view to $0.97–$0.98 from $0.93–$0.95.

“We believe the company is still on a high-growth trajectory at scale, with healthy growth across all regions and product segments this quarter,” Lenschow wrote in a note.

Analyst's Takeaway

Lenschow sees fourth quarter billings growth of 25 percent versus the implied guidance of 29 percent last quarter. This also puts salesforce in-line with historical second half growth of 23 percent year-over-year versus 26 percent last year.

The quarterly results also underscore salesforce's broad-based strength, with sales cloud continuing to grow at a solid 13 percent and marketing cloud growing at 46 percent. Cash flow is also strong and the analyst expects the company hitting its $2 billion target this year.

Lenschow reiterated its Overweight rating, saying salesforce shares are attractive at close to 5.0x EV/CY 2017 Sales, which is the bottom of its historical range (5.0x–8.0x).

At last check, shares of salesforce climbed 5.36 percent to $79.22. Lenschow has price target of $89.