Salesforce.com, Inc. (NYSE:CRM) stock has declined seven percent year-to-date. One of the factors that negatively affected CRM stock was the speculation that it was considering to buy Twitter Inc (NYSE:TWTR), which was questioned by analysts and shareholders.
In a note to investors earlier this month, Mizuho Securities warned that acquiring the struggling micro-blogging company could destroy as much as 25% of Salesforce’s value. CRM stock dropped significantly after the equity research firm released its comment. Fidelity Investments, the largest shareholder of Salesforce stock, told the company that purchasing Twitter was a “bad idea.” (Source: “Salesforce Shareholders Besiege Possible Twitter Deal,” The New York Times, October 7, 2016)
The cloud computing company’s management team eventually decided not to pursue a bid for Twitter. Last week, Salesforce CEO Marc Benioff said his company “walked away” because Twitter was “not the right fit.” (Source: “Twitter suitors vanish as Salesforce rules out bid,” Financial Times, October 14, 2016.)
Salesforce shareholders were pleased with the company’s decision, and CRM stock climbed five percent to $74.27 per share on October 14. However, CRM stock wiped away some of its gain and was trading around $72.87 per share, down nearly two percent on October 17. The company’s management recently warned that Salesforce stock would continue to experience a foreign exchange (FX) headwind until the end of the year.
There is no reason for investors to be bearish on Salesforce stock despite the FX pressures. In fact, they should be optimistic, given that the company is a consistent outperformer, and will continue to be so.
CRM Stock’s Earnings and Revenue are Growing Steadily
Salesforce stock has been delivering financial performances that beat or meet the expectations of Wall Street analysts on a quarterly or annual basis. The cloud computing company’s earnings growth rate was 6.83%, and its revenue growth rate was 5.65% over the past four quarters.
In its second-quarter fiscal 2017 results alone, Salesforce reported adjusted earnings of $0.24 per share on $2.04 billion in revenue, up 25% year-over-year. All of its cloud service offerings achieved revenue growth during the period. (Source: “Salesforce Announces Fiscal 2017 Second Quarter Results,” Salesforce.com, Inc., August 31, 2016.)
Analysts expected the cloud computing company to deliver earnings of $0.22 per share on $2.02 billion in revenue.
During its fiscal year 2016, Salesforce posted annual earnings of $0.75 per share, in line with the consensus estimate. Its revenue was $6.67 billion, higher than the $6.5-billion Wall Street estimate.
Over the past four years, Salesforce attained impressive earnings and revenue growth rates of more than 24% and 31%, respectively.
Salesforce raised its revenue guidance for the full fiscal 2017 in the range of $8.28 billion to $8.33 billion. The company estimated its non-generally accepted accounting principles (GAAP) earnings to be around $0.93 to $0.95 per share, which represents approximately 70 basis points improvement in operating margin. Its operating cash flow is projected to increase by as much as 21% year-over-year. The company already included the estimated $100.0 million to $150.0 million FX headwind to its business outlook.
Salesforce Einstein: A Great Recipe for Continued Growth
Salesforce acquired several artificial intelligence (AI) companies over the past few years. Its machine learning team is now composed of more than 175 data scientists, who built “Salesforce Einstein,” an AI platform launched by the company last month.
During Salesforce’s recent earnings call, Benioff described Salesforce Einstein as the world’s first comprehensive or smartest AI platform for customer relationship management (CRM). He emphasized that the AI platform is a “huge differentiator and growth driver going forward.” Benioff also said that the platform positions Salesforce ahead of the CRM competition.
According to Benioff, the company will introduce great new AI products and integrate many AI features in all of its cloud offerings. Salesforce customers will have the ability to develop their own AI applications using the Einstein and “Heroku” platforms.
Big Client Wins for Salesforce Stock
Note that Salesforce continues to gain traction. The cloud computing solutions provider closed some of the largest and most strategic transactions in the industry during its second quarter. The company closed another nine-figure deal with a Fortune 50 customer.
Some of its client wins included Cellcom, PostNord AB, Shinsei Bank Ltd. (TYO:8303), Meiji Yasuda, TNT, AXA, Nestle SA (ADR) (OTCMKTS:NSRGY), Samsung Electronics Co Ltd (KRX:005930), and Telstra Corporation Ltd (ASX:TLS).
The Advisors Group, UnitedHealth Group Inc (NYSE:UNH), Macy’s Inc (NYSE:M), Nationwide, and Farmers expanded with Salesforce’s cloud offerings. (Source: “Q2 2017 Earnings Call,” Salesforce.com, Inc., August 31, 2016.)
This month, Dunkin Donuts Brands Group Inc (NASDAQ:DNKN) deployed the Salesforce “Customer Success Platform” to strengthen its customer loyalty. Aldo Group, a leading creator, and operator of footwear and accessory brands doubled its rollout of Salesforce’s “Service Cloud” to consolidate its service activities across two signature brands.
The Bottom Line for CRM Stock
Salesforce is one of the fastest-growing software companies worldwide. It is also recognized as one of the world’s most innovative companies by Forbes for the sixth consecutive year. The company is considered the “innovator of the decade.” The accolades received by the company and its financial performances prove that it is truly a market leader.
Wall Street analysts are bullish on Salesforce stock. They believe the company will continue to outperform the market. Analysts forecasted that CRM stock could gain as much as 48% to $110.00 per share over the next 12 months. Their median price target is $95.00 per share, an upside of almost 28% from its current trading price.