Credit: Shutterstock photoEnterprise cloud computing specialist Salesforce.com (CRM) is set to report first quarter fiscal 2019 earnings results after the closing bell Tuesday.
The company has seen its earnings projections rise since the start of the quarter. It’s likely for this reason that CRM stock — which closed Friday at $127.96 and has returned 25% year to date — has risen some 10% over the past thirty days. But given that Salesforce’s profit margins are thin, valuation concerns are once again on the minds of investors. This means on Tuesday the tech giant must deliver a strong profit beat and issue confident guidance to keep these shares on their uptrend.
For the quarter that ended April, Wall Street expects the San Francisco-based company to report 46 cents in earnings per share on revenue of $2.94 billion. This compares to the year-ago quarter when the company earned 28 cents per share on $2.39 billion in revenue. These results would mark year-over-year increases of 64% and 23%, respectively. For the full year, earnings are projected to rise 57% year over year to $2.13 per share, while revenue of $12.75 billion would mark a 21.7% rise year over year.
Strong growth projections for both the top and bottom lines are commonplace for Salesforce, which has topped or matched the Street’s earnings estimates in fifteen straight quarters. And the company’s growth-by-acquisition strategy, particularly its recent deal for MuleSoft valued $6.5 billion, has been one of the main catalysts. And while some analysts questioned Salesforce’s willingness to overpay for MuleSoft (the deal valued MuleSoft at a 36% premium to its closing price before the announcement), investors appear willing to give the company time.
While Salesforce has taken a leadership position in the fast-growing cloud market, which it pioneered, the company understands that it is not alone anymore. Competition from the likes of Microsoft (MSFT) and Oracle (ORCL), among others, have bitten into Salesforce’s growth rate since it went public almost fifteen years ago. In Q1, though its revenue forecast surpassed analysts’ estimates, Salesforce Q1 guidance came in below consensus.
As such, a strong bottom line beat Tuesday is important, given the hefty valuation investors are paying for. Likewise, there will be a focus placed on the company’s expenses to see the extent to which its overseas investments will impact future profits — not just for this quarter, but for the rest of 2019. From my vantage point, however, investor patience is the best strategy here.
All told, given Salesforce’s top-notch management team and MuleSoft's capabilities in surfacing data across enterprises, Salesforce’s growth rate can continue to accelerate for many years to come. To the extent Salesforce can bring synergies to to this deal to significantly improve the customer relation experience between and within Salesforce's ecosystem, the combined company would have created tremendous long-term value for the company and its shareholders.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
