What To Watch For In Salesforce’s Q3 Earnings

by Trefis Team
-4.83%
Downside
107
Market
102
Trefis
CRM
Salesforce.com
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Last week, Salesforce (NYSE:CRM) announced its partnership with Google (NASDAQ:GOOGL) to integrate Google’s G Suite office software suite with Salesforce’s core platform, and integration of Google Analytics into Salesforce’s marketing software. Investors reacted positively, with the company’s stock price going up by 5%. Moreover, as the company is expected to post another strong quarter on Thursday, November 16, it could further boost the stock price.

The company expects to generate revenues of $2.64 billion, representing over 23% year-over-year growth. With customer preferences shifting towards cloud-based products, the company’s enterprise cloud computing solutions – which include apps and platform services, as well as professional services to facilitate the adoption of its solutions – will play a key role in driving its growth.

Salesforce is relying on its AI CRM platform Einstein to further the adoption of the company’s cloud solutions. Sales Cloud – the company’s flagship product – continues to be the largest contributor to the Subscription and Support segment. In the previous quarter, Service Cloud grew by 21% and Marketing Cloud saw a revenue increase of 36%, excluding the acquisition of Demandware. We expect continued growth across the CRM and software businesses.

Sales and R&D expenses, which have continued to grow in absolute terms, have seen a drop as a percentage of revenues over the past few quarters, and we expect that trend to continue. Moreover, with a low attrition rate and an expanding customer base and product portfolio, we believe that the growth in sales and R&D expenditures is justified.

Margins are expected to improve due to the likelihood of increased adoption across product lines. We expect an increased adoption rate internationally, as the demand for cloud solutions and integrated end-to-end CRM solutions with AI support grows globally. However, as the company is focused on customer-centric growth and will likely remain acquisitive in the near term, it may continue to see some pressure on its bottom line.

We believe that the Salesforce stock is worth nearly $102, which is slightly below the market price.

See our complete analysis for Salesforce

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