Salesforce.com Inc. (CRM, Financial) is slated to report its first quarter results for fiscal 2016 on May 20. The company’s extensive Software as a Service (SaaS) customer relationship management (CRM) suite has progressively transitioned into offering cloud computing solutions for several global industries and businesses. The company’s rivals include Oracle Corp (ORCL, Financial), Workday Inc. (WDAY, Financial) and Europe's biggest software group SAP SE (SAP, Financial).
Salesforce reported a 26% year-over-year growth to $1.44 billion in its fourth quarter revenues and a 32% year-over-year growth to $5.37 billion in annual revenue for FY2015, on the back of more businesses opting for cloud software services that are easier to manage and cost less. The company narrowed its net loss to $65.8 million or 10 cents a share compared to the prior-year quarter’s loss of $116.6 million or 19 cents a share. Excluding items, the company’s non-GAAP net earnings for the quarter stood at 14 cents a share, while for the EPS for the full fiscal 2015 came in at 52 cents a share. Following the results, Salesforce set guidance in the $1.485-$1.505 billion range, translating to a 21%-23% year-over-year growth, with non-GAAP earnings projected to be 13-14 cents a share for Q1 2016. For the full fiscal 2016, Salesforce projected a 20% growth in revenues, with the figure resting in the $6.475-$6.52 billion range, and non-GAAP earnings expected to be in the 67-69 cents a share range. Salesforce shares are currently up 4.1% since the company’s last earnings report.
Takeover Talks to Dominate Results
Salesforce has been in the eye of takeover talks through the last couple of months with speculations flying wide as to which of the IT giants would buy out the company. Consequently, the company’s shares have gained about 11% over the past few weeks. With Salesforce holding a 16.1% share of the $20.5 billion CRM market, the company’s acquisition makes strategic sense to any of its top five CRM rivals that would immediately find itself vaulted to the position of market leader. However, although the company is said to have engaged financial advisors to deal with takeover bids, the current lofty price of Salesforce is seen as a certain deterrent to any talk of acquisition. While Wedbush Securities Inc recently reiterated a Neutral rating on Salesforce.com, setting a $66 a share price target, Barclays’ investment bank reiterated its $76 price objective on the stock. Consequently, experts opine that any takeover deal would require to come in at a minimum of 20% premium over current price levels, or at least $85 a share.
On the performance front, Salesforce has been continuing to work on growth strategies such as expansion of its cloud ecosystem, industry messaging and solutions and international operations. Although the company did not make any 8-figure deal during Q1 2016, a substantial number of seven-figure Wave deals were made, bucking the company's trend of not making too many deals in the first quarter. Further, although the company increased spending on security for its enterprise products, this is not likely to have a significant impact on Salesforce’s Q1 business. The CRM giant’s transaction volume during the quarter is likely to see the company beat the consensus expectation of $0.14 a share on revenues of $1.50 billion. However, with Salesforce generating nearly 30% of its total revenue from outside the Americas, the possible negative impact of foreign exchange headwinds on the Q1 results cannot be ignored.
Final Thoughts
Salesforce.com posted better-than-expected fourth quarter and full fiscal earnings for 2015, with revenue growth across segments. The company has beaten earnings expectations by 1c in four of the last five quarters and has been a frequently discussed takeover target during the last few months. While the company’s shares lost some steam when Morgan Stanley recently removed Salesforce.com from their “Best Ideas” list, the market is also bearish given the lofty price of Salesforce shares. The company probably needs to report EPS of at least $0.15 a share on revenues above $1.51 billion to sustain market interest. Salesforce shares have mostly traded in the $61-$76 range in the last three months, hitting an all-time high of $78.46 on 29th April 2015 when the company announced that it had hired financial advisors to evaluate takeover bids. The market is however expected to focus more on the company’s guidance following the Q1 results for a possible retest of the all-time high. The Salesforce.com stock carries a price estimate of $72.59 a share, and a ‘buy’ guidance.
