Will SalesForce Earnings Be A Decent One?

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Nov 19, 2014

Salesforce.com (CRM, Financial) is slated to report its third-quarter earnings for the 2015 fiscal year on November 19, after the bell, and analysts are expecting the company to do exceptionally well. Investors are questioning whether the growth momentum of Salesforce will be in place after the actual earnings get released. Currently the company is enjoying a strong run which it expects to maintain in the near future. So what are the expectations around the quarter results? Here’s the final story.

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What are researchers saying?

Research firm IDC pegs the public Cloud market at $57 billion this year and states that the market will balloon to $127 billion in the next four years. And the best part is that Salesforce is considered the pioneer in the Cloud business.

Salesforce has been profiting from the rapid growth in Cloud software business, and it has even enjoyed the recent run up. Soon after the annual Dreamforce event held on October 13, the stock took an upsurge of 17%, easily becoming the best performer on the NASDAQ or the S&P 500 index.

Researchers have attributed the recent gain seen in Salesforce stock to be partially due to the company’s launch of new products such as "wave" which is Salesforce’s primary move into the analytics marketplace.

In fact, it is being believed that to keep the stock at the current levels, Salesforce needs to give a stronger guidance for the coming fiscal year 2016. One potential acquisition target to diversify its business into new cloud offerings could be Demandware (DWRE, Financial) which runs ecommerce platforms for retailers.

What are analysts expecting?

Here’s a closer look at what analysts’ are expecting when the cloud computing specialist reports third quarter earnings of the fiscal year.

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As Salesforce shifts to cloud computing, this suggests that the company would make strong gains in deferred revenue and billings as well as recognizable revenue. In the second quarter, Salesforce’s deferred revenue grew 31% to $2.4 billion and total bookings value rose 32% to $7.4 billion.

Analysts are hoping that, with similar gains during the quarter, the company could push total bookings to $9.3 billion. Also, a year back Salesforce implemented the Salesforce 1 platform for engaging mobile users and improving usage across customer sites. Investors were happy in the second quarter as the accounts receivable grew just 16.5%, and revenue zoomed 37.8%, according to data provided by S&P Capital IQ.

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Salesforce co-founder and CEO Marc Benioff will be addressing the interested lot on Wednesday, and analysts are awaiting the earnings call for better answers to their estimates.

However, analysts have also cited valuation concerns as well as elevated expectations to temper the share response even if the quarter results are spectacular to read through.

But as the company is aggressively focusing on expanding its operations across Europe by opening data centers, this might aid in tapping local small and medium businesses as well as government agencies.

But in the cloud computing domain, Salesforce also faces tough competition from rivals such as IBM (IBM, Financial), Oracle (ORCL, Financial) and SAP (SAP, Financial). So this challenge might create a drag in its future stock prices.

Conclusion

Though the Cloud computing line of business can take Salesforce on a growth trajectory for the coming quarters, a lot needs to be decided with respect to fighting against strong rivals. As investors, we need to watch the key highlights of the quarter to take a better investment decision.