Salesforce.com, inc. CRM shares jumped 25% on Wednesday after the company reported blowout second-quarter earnings numbers and exceeded expectations with its full-year guidance.
Salesforce reported second-quarter EPS of $1.44 on $5.15 billion in revenue. Both numbers exceeded consensus analyst estimates of 67 cents and $4.9 billion, respectively. Revenue was up 29% from a year ago.
For the full fiscal 2021, Salesforce guided for EPS of between $3.72 and $3.74 on revenue of between $20.7 billion and $20.8 billion. Consensus analyst estimates had been calling for $2.96 in ESP and $20.07 in revenue.
'Stupendous' Numbers: Bank of America analyst Kash Rangan said a $20 billion revenue run rate with 20% organic growth and 20% operating margins is nothing short of a “stupendous” quarter.
“Estimated cRPO organic q/q acceleration from 17% in Q1 to 19% in Q2, and 19% guide for 3Q, imply cRPO re-acceleration, and subsequently, potential organic revenue re-acceleration in FY22E,” Rangan wrote in a note.
Morgan Stanley analyst Keith Weiss said Salesforce’s focus on serving its customers is paying off.
“A strong focus on the customer well sustained demand in a difficult environment, yielding organic growth well above expectations and enabling solid margin expansion in Q2,” Weiss wrote.
Wedbush analyst Daniel Ives said Salesforce’s impressive guidance is good news for the entire cloud group moving forward.
“Overall this was a ‘jaw dropping performance’ for the stalwart CRM and will be a major feather in the cap for the bulls digesting results/guidance this morning,” Ives wrote.
Valuation Upside: Raymond James analyst Brian Peterson said it’s surprising that Salesforce trades at a valuation discount to peers based on fiscal 2022 sales projections.
“Clearly, Salesforce's relationship with its customers and the importance in facilitating digital engagement models has expanded in the current pandemic, while company specific actions on margins (raising FY figure despite pulling forward investments) should go against a key bearish tenet (when will we see margin expansion),” Peterson wrote.
Piper Sandler analyst Brent Bracelin said Salesforce’s surprising jump in margins to a record 20.2% was a highlight of the quarter.
“The 82% y/y surge in operating profits that topped $1B for the first time hints at the longer-term profit potential for a cloud software pioneer with 83%+ subscription gross margins,” Bracelin wrote.
Needham analyst Scott Berg said management’s commentary related to its post-COVID sales pipeline was also better than anticipated, but Salesforce’s stock appears fully valued at current levels.
“We also believe the company’s 1.33:1 EV/FY FCF:Revenue growth rate valuation ratio is at the mean of its recent three-year valuation and also near the mean of other profitable SaaS companies,” Berg wrote.
COVID-19 Tailwind: Baird analyst Rob Oliver said Salesforce’s second quarter was exceptionally strong, delivering upside across the board.
“Clearly, COVID-19 has accelerated the digitization needs of global enterprises, and CRM is a go-to for companies to make mission critical investments to adjust to ‘new normal,’” Oliver wrote.
Mizuho analyst Gregg Moskowitz said the blow-out quarter reinforces Salesforce as one of his top stock picks.
“While our checks had picked up healthy improvement in demand, the F2Q upside displayed by CRM quite simply surpassed all expectations,” Moskowitz wrote.
Credit Suisse analyst Brad Zelnick said Salesforce is getting back on track by focusing on execution.
“FY guidance was raised across the board driven by improving new business trends and F3Q pipeline, and we see this increasing the likelihood of FY24 guidance being reinstated at the company’s analyst day this fall,” Zelnick wrote.
CRM Ratings And Price Targets:
- Bank of America has a Buy rating and $280 target.
- Morgan Stanley has an Overweight rating and $275 target.
- Wedbush has an Outperform rating and $300 target.
- Raymond James has a Strong Buy rating and $255 target.
- Piper Sandler has an Overweight rating and $285 target.
- Needham has a Hold rating.
- Mizuho has a Buy rating and $275 target.
- Credit Suisse has an Outperform rating and $245 target.
- Baird has an Outperform rating and $285 target.
The stock traded around $271.53 at time of publication.
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