“Roach Motel” Tech Company Trumps Ridicule

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“Roach Motel” Tech Company Trumps Ridicule

Salesforce.com: "Roach Motel" Company Trumps Ridicule

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By Richard Robinson, Ph.D., Equities Analyst

 

Two years ago, Oracle (ORCL) Founder Larry Ellison called salesforce.com (CRM) the “roach motel” of cloud computing.

Fast-forward to today, and the company has made remarkable progress. Just on February 26, CRM shares jumped more than 11.7% after meeting analysts’ Q4 2015 estimates.

Even more impressive, Salesforce reached $5 billion in annual revenue faster than any other enterprise software company in history.

Salesforce’s primary goal now is to hit $10 billion!

And to the chagrin of Ellison, salesforce.com just might get there . . .

Strong, Solid Results . . .

Salesforce is certainly following the path of success: The company disclosed its Q4 2015 revenue of $1.44 billion, a 26% increase over the fourth quarter last year. When looked at in terms of constant dollars, the increase was 29%.

The strong revenue growth was partly attributed to its subscription and support revenue, which increased by 25% to $1.35 billion.

Salesforce reported adjusted earnings of $0.14 per diluted share, which was in line with analysts’ estimates. However, on a generally-accepted-accounting-principles (GAAP) basis, the company lost $0.10 per share.

And concerning the full fiscal year, total revenue reached $5.37 billion. That’s an increase of 32% over fiscal year 2014, and a 33% increase in constant currency terms.

On an adjusted basis, diluted EPS was reported to be $0.52, while the GAAP loss per share was a -$0.42.

Total deferred revenue on the balance sheet, as of January 31, was $3.32 billion, an increase of 32% over the previous year.

Strong Guidance Leads to Upgraded Price Targets

For the first quarter of fiscal 2016, salesforce.com expects revenue to be in the range of $1.48 billion to $1.50 billion, reflecting an increase of 21% to 23% over Q1 2015. The company also expects non-GAAP earnings to be in the range of $0.13 to $0.14 per diluted share.

But in a nod to investors, the company raised its guidance for the full year.

Salesforce now expects revenue in the range of $6.47 billion to $6.52 billion, representing a year-over-year increase of 20% to 21%. Those figures take into account a foreign exchange headwind of $175 million to $200 million.

The company also projects higher non-GAAP earnings of between $0.67 and $0.69 per diluted share, which prompted no fewer than 10 investment banks to raise their price targets on February 26.

The highest price target comes from Cowen and Co. It raised its target from $73 to $83, a 13.6% increase. The remaining banks raised their target to a median price of $79.

Bottom line: The company’s robust top-line performance and higher number of platform deals indicate solid growth opportunities in the fast-growing cloud segment.

But with valuations in nosebleed territory – the company trades at roughly 100x its earnings estimates – salesforce.com just never gets anywhere close to becoming a compelling “Buy” for conservative investors.

Good investing,

Richard Robinson

The post “Roach Motel” Tech Company Trumps Ridicule appeared first on Wall Street Daily.
By Richard Robinson