Salesforce.com Posts Another Strong Quarter; On Track To Reach $23 Billion In Sales By 2022

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As expected, Salesforce.com (NYSE: CRM) posted another stellar quarter last week backed by growth across its product lines and geographies. The company continues to leverage the growing demand for digitalization and cloud-based products. Consequently, the company plans to focus on acquisitions and partnerships, apart from enhancing its reach and product offerings, to achieve its target of $23 billion in sales by 2022. This will strengthen its lead position in the CRM space and drive its value in the long term.

We currently have a price estimate of $155 per share, which is in line with the market price. View our interactive dashboard – Salesforce’s Outlook For 2018 and modify the key drivers to visualize the impact on its valuation.

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Key Trends Witnessed In 2Q Results

  • Salesforce.com 2Q revenue jumped around $3.3 billion, a rise of 27% on a year-on-year basis in constant currency terms. The company continued to accelerate decision-making and support customer-centric growth across its portfolio of brands, delivering strong improvement across all its product lines – Sales Cloud, Marketing Cloud, Service Cloud, and Einstein, the company’s artificial intelligence (AI) platform. Further, the MuleSoft acquisition contributed $122 million to the total revenue, which was higher than the company’s estimates.
  • Similar to the previous quarters, Salesforce.com’s operating expenses continued to rise due to high spend on marketing and sales and R&D. However, the company benefited from the tax valuation allowance as a result of the MuleSoft acquisition, causing its non-GAAP earnings to increase to $0.71 per share.
  • Despite anticipated foreign exchange headwinds in the second half of the year, the company revised its full year 2019 revenue guidance by $50 million to $13.125-$13.175 billion, a 25% year-over-year growth (including MuleSoft). For Q3, Salesforce.com expects its revenue to be in the range of $3.355-$3.365 billion, and non-GAAP diluted EPS to be between $0.49 and $0.50 per share.
  • Based on the strong performance in the first half of the year, the company has raised its full-year fiscal 2019 non-GAAP operating margin guidance to 16.75%-17.00%, an improvement of 0.25%-0.50% over the last year. Accordingly, the company’s non-GAAP diluted EPS is estimated to be in the range of $2.50-$2.52 per share, higher than its previous expectations of $2.29-$2.31 per share.

Going Forward

  • Salesforce.com aims to achieve revenue of $23 billion by fiscal year 2022 driven by the technological revolution that includes the demand for artificial intelligence and machine learning. To achieve this, the company has introduced the next generation of its AI platform, Einstein, to unlock deeper customer insights and deliver a transformational customer experience. The platform now provides over 3 billion predictions and insights to Salesforce’s customers daily. We expect the AI platform to augment the company’s growth in the coming years and enable it to achieve the revenue target on or ahead of plan.
  • Salesforce.com has extended its strategic alliance with Google to deepen the integration between the company’s Marketing Cloud and Google Analytics 360. The initiative has been witnessing positive feedback from customers. Further, Salesforce Commerce Cloud continues to be the fastest growing enterprise commerce solution and is delivering solid results. The company recently acquired CloudCraze, the leader in B2B commerce, to offer a single platform that can be used for both B2B and B2C experiences by Salesforce’s clients. All these initiatives are likely to boost the company’s top-line as well as valuation in the near term.

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