Buy CRM Stock as Salesforce Tries to Double Revenue by 2023?

Shares of Salesforce CRM fell after-hours Monday and continued their dip in morning trading Tuesday after the firm provided some weaker-than-expected guidance. Despite the small downturn, the cloud-focused, software-as-a-service powerhouse said it plans to double its revenue over the next four years as businesses around the world adapt to the quickly changing digital age.

Q4 Overview

Salesforce posted fourth-quarter fiscal 2019 revenue of $3.60 billion. This marked a 26% jump from the prior-year quarter and surpassed our $3.56 billion Zacks Consensus Estimate. Investors should note that CRM's Q4 revenue growth topped the four-quarter of 2018's 24% and matched Q3's climb.

More specifically, Salesforce's quarterly subscription and support division came in at $3.375 billion, which beat our NFM estimate and represented a 26.4% climb. CRM's smaller, professional services and other unit did fall short of our estimate at $228 million.

At the bottom end of the income statement, Salesforce's adjusted fourth-quarter EPS climbed from $0.47 to reach $0.70 a share and crush our $0.56 per share estimate. Meanwhile, the customer relationships management firm's free cash flow surged 27% to $1.16 billion, to easily top Wall Street expectations that called for just a 4% climb.

Q1 & Fiscal 2020 Outlook

Looking ahead, as we mentioned at the top, Salesforce provided some lower-than-expected guidance.

Management projected adjusted fiscal first-quarter earnings between $0.60 and $0.61 per share, which came in just below our $0.62 a share estimate. Despite the subdued Q1 outlook, the company's full-year earnings guidance of $2.74 to $2.76 per share came in above our $2.73 a share estimate.

CRM expects to report first-quarter fiscal 2020 revenues between $3.67 billion and $3.68 billion. This fell below our $3.72 billion estimate, which would have marked 23.6% growth. For the full year, Salesforce provided revenue guidance in the $15.95 billion to $16.05 billion range, which came somewhat in line with our current $15.98 billion estimate that would have marked nearly 21% year over year expansion.

What's Next?

Jumping even further ahead, Salesforce management projects to see its revenue reach $26 billion to $28 billion by fiscal 2023. This implies an annual growth rate of roughly 19% over the next four years and would see the firm double its revenue. However, investors should note that this revenue growth would mark some of the slowest Salesforce has seen in years, after an extended run of roughly 25% growth every quarter.

Clearly, the slowdown is certainly not guaranteed and Salesforce has surpassed the high-end of its short-term revenue forecast every quarter for the past five years . Still, revenue deceleration is certainly not a welcome sign, but it is something that every successful company experiences at some point.

For instance, Amazon AMZN looks poised for a top-line slowdown along with Facebook FB and other tech giants, while Apple AAPL is set to for an outright downturn this year. But once investors get used to the new normal, stocks can soar, especially in growth industries, just ask Microsoft MSFT .

At the end of the day, Salesforce still operates a business that looks poised to remain valuable for years to come. Salesforce offers its business clients a wide range of cloud-based platforms to help them run sales, marketing, e-commerce, analytics, and much more. The San Francisco-based firm's customer relationship management offerings have become essential to many companies and would otherwise require a large amount of in-house talent, infrastructure, and maintenance.

Salesforce's clients include American Express AXP , Intuit INTU , the U.S. Department of Agriculture, and more than 150,000 other firms and agencies. Marc Benioff's company also sells Microsoft Office-style products to help compete against MSFT and Google GOOGL and has introduced new wrinkles to its Einstein artificial intelligence platform.

Salesforce and some of its peers such as Adobe ADBE , Oracle ORCL , and VMware VMW , offer software and web-based services that allow companies to operate in today's connected age, which isn't trendy or cyclical. "As companies of all sizes turn to Salesforce, we're enabling them to put the customer at the center of their digital transformation through our intelligent Customer 360 platform," Benioff said in a statement. "I've never been more excited about the opportunity ahead."

Bottom Line

Salesforce might see its top-line slowdown going forward. Nonetheless, the company looks set to play a major role in the expansion of cloud computing, AI, and other newer areas of tech innovation, which some industry analysts and experts have called the Fourth Industrial Revolution.

CRM stock was down just over 1% through morning trading Tuesday to sit at $156.78 a share. This marked a roughly 5.5% downturn from Salesforce's 52-week high of $166.15 a share. Salesforce is a Zacks Rank #1 (Strong Buy) at the moment, but that could change as analysts update their estimates based on the company's new guidance.

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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.

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