Market Overview

The Street Loves Still Loves Salesforce

The Street Loves Still Loves Salesforce, inc.'s (NYSE: CRM) second-quarter results came in better than expected. On top of an earnings and sales beat, management guided third-quarter results ahead of expectations and lifted its full-year sales guidance.

Shares of Salesforce moved higher Friday and multiple analysts reaffirmed bullish stances on the stock.

Key Takeaways From Q2

Salesforce reported a 22% year-over-year increase in revenue at $3.99 billion and came in $45 million above expectations, KeyBanc Capital Markets analyst Brent Bracelin said. The company saw an acceleration in revenue growth from the prior quarter across Sales cloud, Service cloud, Marketing Cloud.

Current remaining performance obligation (RPO) growth was inline with the prior quarter at 23% growth and MuleSoft accounted to $159 million to subscription revenue versus $135 million expected.

"We believe CRM's vast opportunity across several cloud segments and continued success in expanding into new markets via acquisition maintains Salesforce's position as a core SaaS holding," Bracelin wrote in a note.

See Also: Salesforce Stock Jumps On Q2 Beat, Higher Full-Year Revenue Guidance

Salesforce beat EPS estimate by 19 cents. SunTrust Robinson Humphrey analyst Terry Tillman said that excluding benefits from mark-to-market accounting and a lower than expected negative impact from, EPS would have still beat estimates at 51 cents. The analyst highlighted cash flow also came in better than expected at $258 million versus the Street's estimates of $129.1 million.

Easing Concerns

Salesforce stock was up 8% since the start of 2019, which lagged its broader software peers that gained 36%, UBS analyst Jennifer Swanson Lowe said. Investors had concerns related to end-market demand for Salesforce's products and services and recent M&A activity.

Salesforce's earnings report should help ease concerns, the analyst said, as cRPO was "solidly ahead" of estimates in the quarter and management's implied 20% organic growth outlook is a "beatable" bar moving forward so long as execution remains "healthy."

Another Guidance Raise

Management revised its full year 2020 sales outlook higher for the fourth time, BMO Capital Markets analyst Keith Bachman said. Total revenue is now expected to be $16.75 billion-$16.9 billion and includes $550 million-$600 million from Tableau, $200 million from, and $25 million from ClickSoftware.

Excluding the recent acquisitions, Salesforce's core business is still expected to grow by an "impressive" rate of 20% to 21% off an already large size.

"We believe the momentum with Customer 360 is helping to drive revenue growth as well and the long-term potential is compelling," Bachman wrote. "We think ongoing margin improvement is attainable, barring any further large M&A."

See Also: VMware Will Acquire Pivotal Software And Carbon Black

Morgan Stanley: What To Look Out For

Salesforce investors may want to be on the lookout for two key items moving forward, according to Morgan Stanley analyst Keith Weiss.

First, Salesforce showed a one-point foreign exchange headwind to revenue and a 2 percentage point impact to CRPO growth. For the full year management expects around $200 million year-over-year foreign exchange headwind as the U.S. dollar improved against most global currencies.

Second, management offered minimal details on Tableau's integration timeline and potential synergies. The two companies are still operating separately and further color is expected to be presented at the mid-November Analyst Day presentation.

Ratings And Price Targets

  • KeyBanc maintains at Overweight, $180 price target.
  • SunTrust maintains at Buy, price target lifted from $189 to $195.
  • UBS maintains at Buy, $190 price target.
  • BMO maintains at Outperform, price target lifted from $185 to $88.
  • Morgan Stanley maintains at Overweight, price target lifted from $178 to $180.

Price Action

Shares of Salesforce traded higher by 3.5% at $153.64 at time of publication.

Latest Ratings for CRM

Oct 2020BarclaysMaintainsOverweight
Oct 2020UBSInitiates Coverage OnBuy
Aug 2020StifelMaintainsBuy

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