CRM : NYSE : US$55.71 BUY
Target: US$65.00
WHAT THE FIRM COULD DO TO HELP THE STOCK OUTPERFORM THE MARKET.
Investment thesis
As the best-in-class cloud software firm, Salesforce remains our favorite large cap
growth stock. With more transparency (revenue run-rates of the various clouds was
a good start), the firm could see multiple expansion; however, even if this doesn’t
happen, we expect the shares to advance at least 20% over the next 12 months.
That’s a worthwhile potential return for a large cap stock. BUY.
Another upside print. CRM reported Q2/15 revenues and non-GAAP EPS of
$1.32B and $0.13, which were respectively $29M and a penny ahead of our
estimates. Constant currency revenue growth was 37% in the quarter, and
calculated billings of $1.35B were nicely ahead of our $1.30B estimate and up
33% compared to a year ago. Total backlog (billed and unbilled) ended the
quarter at $7.35B, which is up 17% versus Q2/14. Lastly, CRM generated FCF
of $174M, or $0.27 per share, which was well ahead of our $0.18 estimate;
YTD FCF is up 90% compared to 1H/14.
Color from the call. The firm noted an 8-figure deal (one of several) with 3M in
the quarter as well as a Salesforce1 Platform deal with Safeway. In the quarter,
sales cloud was 49% of subscription revenue, service cloud 26% (though the
fastest growing), SF1 platform 15%, and marketing cloud 10%. On the event
front, CRM will host its Connections marketing cloud conference in late
September (which could pressure a stock like MKTO as the firm makes noise on
that front), and management suggested that the firm will be introducing an
entirely new product line and category at Dreamforce in October.
Outlook: F2015 revenues increase ~$40M, EPS inches up by a penny. This was
a classic beat and modest raise quarter. Revised guidance points to 32%
revenue growth and ~150 bps of operating margin expansion in F2015.
Interestingly, Q3/15 marks the first full quarter that CRM will have lapped the
ET acquisition, and implied billings guidance suggests healthy, 25% growth
Salesforce.com
Salesforce.com
NYSE : US$43.65 BUY
Target: US$54.00
COMPANY DESCRIPTION:
14-year-old Salesforce.com sells cloud computing and social enterprise solutions for businesses that range from Enterprise to
SMB. The firm’s core products include Sales Cloud (sales automation), Service Cloud (customer support applications),
Marketing Cloud (marketing tools), Force.com (a development platform) and Chatter (enterprise collaboration).
Technology — Enterprise Software — Software as a Service
AN UPSIDE QUARTER, AND MORE GOOD NEWS LIKELY ON THE WAY FROM CUSTOMER EVENTS; REITERATE BUY
Investment thesis
Salesforce’s Q2/14 results were nicely ahead of forecasts across the board. The firm remains by a wide margin the fastest growing company of its size, and with the addition of marketing automation functionality and still nascent adoption of its platform capabilities, we believe CRM should be able to keep its impressive growth trajectory relatively intact for at least the next 6-8 quarters.
The combination of a reasonable valuation and likely favorable commentary into and following upcoming customer events – ExactTarget Connections in September and Dreamforce in November – sets the stock up for a nice run through year-end. CRM is one of our top picks and should be a core growth holding for software investors. Reiterate BUY, increasing target to $54.00.
A solid print: upside revenue, FCF, and billings. CRM reported July quarter revenues and non-GAAP EPS of $957M and $0.09, which were respectively $22M and $0.02 ahead of our estimates. Adjusting for $16M of acquired ET revenue and a $7M FX headwind, organic revenue growth was ~30%.
FCF of $80.6M in the quarter, or $0.13 per share, was nicely ahead of our $57.0M estimate. Calculated billings of $1.014B was $80M ahead of our forecast and up roughly 34% y-o-y after adjusting for ET contribution, the impact of changing billing terms and FX. CRM ended Q2 with a $5.6 billion backlog of booked business, which is up ~$1.2 billion from a year ago.
Outlook
Q3 slightly better, FY estimates inch modestly higher. CRM inched higher F2014 revenue and EPS guidance by approximately $35M and a penny largely due to an earlier-than-anticipated close of ET. Our updated estimates are for F2014 revenue growth of 32%, non-GAAP operating margins of approximately 9%, and operating cash flow growth of 15%
Related articles
- Bring Out the Brooms: Salesforce.com Sweeps the CRM Market Awards (blogs.salesforce.com)
- Salesforce’s Bet on Marketing Tools Starting to Pay Off – Bloomberg (bloomberg.com)
- Do Investors Need salesforce.com Earnings to Grow? (fool.com)
Salesforce.com BUY Target $ 180
Nov. 21
Salesforce.com
CRM : NYSE : US$145.90
BUY
Target: US$180.00
COMPANY DESCRIPTION:
11-year-old Salesforce.com offers Internet-based subscriptions to software applications and infrastructure to over 80,000 customers worldwide. The firm’s core products include Sales Cloud (sales automation), Service Cloud (customer support and call center applications), Force.com (a development platform) and Chatter (a person-to-person collaboration tool for business).
Investment thesis
We expect CRM shares to gradually advance toward our $180 price target over the next few months. We saw nothing in this quarter’s commentary
that altered our bullish view on Salesforce’s future fundamentals and the company’s ability to remain a best-in-class, disruptive large business Cloud vendor that is headed to $10 billion in revenues within 6 years by our reckoning (22% CAGR).
Another solid quarter. CRM reported FQ3 revenues and non-GAAP EPS of $788M (+35% y-o-y) and $0.33, which were $13.4M and a penny
ahead of our estimates. Calculated billings of $743M topped our estimate by $11M and grew approximately 31% after normalizing for the reemphasis on annual billing terms and the sequential benefit from FX. OCF of $106M was slightly below consensus but included a roughly
$32M negative impact from 3 non-recurring items (a payables catchup, settlement of a small lawsuit, and the Buddy Media transaction).
Outlook:
FQ4 and preliminary F2014 guidance in-line with Street. CRM provided January quarter revenue and non-GAAP EPS ranges that
bracketed our estimates. Our estimate for Q4 calculated billings growth of 20% is below trend, as expected, as the firm laps a large multi-year
invoice as well as the impact from the refocus on annual billing terms in the year-ago period. CRM continues to expect OCF growth of at least
20% in F2013. The firm’s preliminary F2014 revenue guidance implies 26% y-o-y growth, in line with consensus and slightly below our highend
estimate. We have introduced F2015 revenue and FCF/share estimates of $4.76B (+24%) and $5.06.
Related articles
- Cramer’s Mad Money – May The Salesforce Be With You (11/20/12) (seekingalpha.com)
Salesforce.com Dreamforce Conference
Sept. 20
While the tone was upbeat as always, it would not surprise us if CRM rested for a few weeks after a likely short-term pop following a few dozen positive notes likely to be published this morning. Our LT view remains quite positive: CRM should be a core holding in most growth portfolios. Reiterate BUY.
Attendance – 90,000 – is up by at least a third compared to last year.
New products – functionality with social selling and services (which means effectively realtime,collaborative, cloud-based workflows). In addition, Salesforce outlined the vision for its performance management HR effort called Work.com. CRM aims to upend this segment with a self-populating, social input system that rolls up performance inputs.
CFO Graham Smith reminded investors that deferred revenues are approximate rather than precise metrics by which to measure the company’s execution. The big picture for CRM has never been brighter – the company adds a handful of new initiatives that add concentric circle-like expansions to an addressable market that to us looks to be at least $50 billion.
CRM shares outperformed NASDAQ in the 30 days preceding Dreamforce, but underperformed into year end. The past is not destiny, but it would not surprise us if CRM rested for a few weeks after a likely short-term pop off of a few dozen positive sell-side notes.
Our intermediate and long-term view remains quite positive, so we would use any pause or temporary trade-back in the stock as a chance to fill out or add to a positions.
Salesforce.com Buy Target $ 180
August 23
Salesforce.com
CRM : NYSE : US$146.77 Buy , Target US$180.00
• Another solid quarter for CRM; momentum should last at least through Dreamforce
Investment recommendation
Salesforce posted another solid quarter, with revenues, FCF and billings topping consensus estimates. We believe CRM shares set up well at least into Dreamforce as the likelihood of news and commentary on those developments is strongly biased to the positive side of the equation. CRM’s moderate margins allow investors to dream big when the news flow is positive and fret when news or the macro is scary. Inasmuch as we believe we are in one of those sin curve upswings, we believe it is possible for CRM to reach or broach $165 before temporarily running out of steam as investors shift back to a “glass is half empty mood.” CRM should be a core growth holding. BUY.
Investment highlights
• Modest upsides across the board. CRM reported Q2 revenues and non-GAAP EPS of $732M (+34% y-o-y) and $0.42, which were $4M and $0.03 ahead of our estimates. FCF of $107M, or $0.73 per share, was up 182% y-o-y and well ahead of expectations (there was a roughly $15M benefit from an increase in Accounts Payable, which will reverse in FQ3). Lastly, calculated billings of $734M topped our estimate by $4M and grew approximately 34% after normalizing for the reemphasis on annual billing terms – calculated billings growth was 30% as reported.
•Outlook:
revenues inch modestly higher on effectively unchanged EPS and FCF. Shares sold off modestly after hours perhaps on Q3 EPS guidance that
was $0.02 light after including Buddy Media and Dreamforce expenses. That said, we know of few investors who own CRM for the near term earnings, so
we would use any weakness as a buying opportunity. After all, F2013
revenues and FCF inched higher off of this report.
Oracle – Introduces The Cloud – Relief Rally ?
Oracle (ORCL : NASDAQ : US$27.18)
June 8 , 2012
After resisting jumping in the bandwagon, CEO Larry Ellison introduced Wednesday a cloud service after six years of development to let corporate customers access data over the Internet, stepping up competition with vendors such as Salesforce.com (CRM ). The business software corporation included social monitoring and data mining services – both hot new areas of growth – in its cloud apps.
The company now generates about $1 billion in annual revenue from Web-based software, still only a third what Salesforce.com projects it will pull in during the current year. Oracle’s cloud products include 100 selfservice applications and platform services, with subscription-based pricing. In addition, the world’s largest database maker has introduced Platinum Services to help customers optimize the value of their technology investments.
The new services will see the covered components are monitored for faults remotely around-the-clock, providing a single point of accountability and bridging the gap between traditional IT support and fully-managed services at a reduced cost. an analyst with Canaccord believes Oracle shares are due for a short-term bounce when the company reports its May quarter (Q4/12) on June 21, but the firm’s fundamentals are not sufficiently strong to produce a sustained rally. Although Salesforce.com is rapidly closing the gap, he continues to believe Oracle has the best enterprise sales force. He expects shares to see a relief rally off of the numbers we foresee.
However, nagging macro fears and limited near-term revenue or earnings momentum could mean summer doldrums for the stock. In Davis’ opinion, the scenario in which Oracle outperforms would be in a down market.
Salesforce – Is A Force : Target $180
Salesforce.com
CRM : NYSE : US$133.80 Buy , Target US$180.00
May 18 2012
THESIS
This is a tough tape, and if Europe keeps dragging stocks down CRM will decline
as well. However, once individual company fundamentals matter again, we are
quite confident that CRM shares will quickly resume their upward trajectory.
When you combine a solid 90-day report card that produced an always popular
beat and raise, it seems pretty clear that CRM’s fundamentals put them into the
top 1% of software companies worldwide (yes we realize CRM says they’re not
software, but they deliver software-based services over the cloud). In any case, if
you fear macro and the stock market, we’d suggest at least inching your way into
CRM shares. If you’re more aggressive, you can rejoice at the discounted price
that fear has produced for new buyers and buy a bigger position.
• Upsides across the board. CRM beat on just about every metric. Revenues of
$695.5M were up 38% y-o-y and were $18M above estimates; calculated
bookings of $650M were up 34% as reported and 36% adjusted for various
deferred revenue optics; FCF per share of $1.15 in the quarter was up 45%
year-over-year and well ahead of consensus; the firm’s dollar attrition rate
moved into the low-teens, which is the 11th consecutive quarter of
improvement in this metric; 40% of new business was non-Sales Cloud.
• Classic beat and raise: estimates moving higher.
CRM guided FQ2 revenues roughly $12M ahead of consensus and increased F2013 revenues by $50M.
Our non-GAAP EPS and FCF/share estimates inched higher by $0.02 and
$0.01, respectively, as the firm continues to invest for growth.
• Record backlog and checks suggest large deal activity remains robust.
Salesforce increased its unbilled backlog (off balance sheet contracts) by more
than $500M sequentially, which includes the firm’s first ever 9-figure deal.
CRM’s total backlog stands at more than $4 billion at the end of Q1.
Valuation and Target
$180 price target is based on a 40x multiple applied to our C2013
FCF per share estimate of $4.27 plus roughly $10 in prospective net cash per
share.
Salesforce – The Force Is With Us
SalesForce.com (CRM : NYSE : US$143.64), Net Change: 11.87, % Change: 9.01%
Salesforce.com’s Q4 results topped expectations and it increased its F13 guidance, sending shares higher on Friday.
CRM reported revenues and EPS of $632million (+38% year over year) and $0.43
Free cash flow was $1.33 in the quarter (+39% year over year), and the much anticipated off-balance sheet backlog was $2.2B, or roughly 45% improved versus a year ago.
Management’s F2012 reven e range inches higher by $35M, and operating cash flow is expected to grow in the low-20%
range.
Revenue estimate to $2.95 billion (+$50 million) and expect FCF/share of roughly $3.46 (17% FCF margin). CRM has already signed its first ever nine-figure customer in Q1/13, a large insurance company.
The firm’s 11 acquisitions count for less than 5% of revenues, and organic revenue growth was over 30% in F12.
On its conference call,management outlined a multi-vectored growth strategy that is driven by what the firm calls “social enterprise.” Over the past two years, the firm rewrote large portions of its software to incorporate real-time information exchange and application access online and wirelessly. Underlying this effort is Force.com, a development environment that started slowly.
However, with an 8 figure deal with Hewlett-Packard (HPQ) in which that firm will rip and replace its legacy development systems from an architecture that includes upwards of a dozen firms, Salesforce has answered in the affirmative the nagging question that many had about the firm’s ability to scale from an interesting apps company to a substantial platform and social apps business.
Expect Salesforce’s fundamental momentum to continue to be quite strong.
P.S. Please feel free to forward this along to friends, family, co-workers, or anyone else you think might be interested in this market letter ( http://www.amp2012.com)
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