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Channel Checks Hint At Continued Momentum For Salesforce

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Channel Checks Hint At Continued Momentum For Salesforce
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Previewing salesforce.com, inc. (NYSE: CRM)'s first-quarter results, Cowen said its channel checks suggest that growth momentum remains well intact. The firm reiterated its rating and price target for the shares of the company.

Salesforce is scheduled to release its quarterly results on May 18.

Pipeline Activity, Growth Remain Resilient

Analysts Derrick Wood and Rakesh Kumar said, based on their recent industry conversations, that pipeline activity and growth execution remain quite resilient on the heels of a particularly strong second half of the fiscal year 2017.

The analysts acknowledged that a percentage of partners missed targets, but said this is fairly typical with past years. The analysts clarified that the partners that are consistently exceeding are the ones that have embraced the broader portfolio outside of SFA, especially Service Cloud and Platform, and increasingly newer products like Marketing Cloud and CPQ.

Partners Confirm 1Q Was A Solid Quarter

Cowen noted that larger and more strategic partners that it has recently spoken to indicated that the first quarter was a solid quarter and that pipeline outlooks remain stable and robust.

Meanwhile, the firm believes the company may have benefited from some large deal spillover from the fourth quarter, leading to a relatively strong first quarter for large enterprise contribution.

Based on customer conversations indicating new Einstein AI services is ticking up, the firm thinks more adoption will materialize in the back half of the year and help drive ASPs higher, with new premium-priced SKUs.

"Lastly, we note that the GBP is up 4.9 percent since CRM last reported (JPY is down 0.5 percent), and as such FX should be an incremental tailwind for out-quarters, likely leading to some guidance upside," the firm said of the forex impact.

"Overall, we don't expect any major surprises in 1Q; we view billings expectations to be quite conservative; and we see a set-up for another beat & raise quarter."

Expectations

Cowen expects revenue of $2.353 billion and earnings per share of $0.26 for the first quarter. This compares to consensus estimates of $2.349 billion and $0.26, respectively.

Specifically, the firm targets billings of $1.746 billion and cash flow of $1.363 billion.

For the second quarter, the firm estimates total revenue of $2.492 billion and earnings per share of $0.30. This compares to the consensus estimates of $2.482 billion and $0.31, respectively.

As such, the firm reiterated its Outperform rating and $100 price target on the shares of salesforce.

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