Despite executing on all cylinders, Salesforce (CRM) hasn’t escaped the massive market correction that have punished high-growth tech stocks since the start of the year. Down nearly 40% from highs above $300 last November, now might be a good time to take a longer look at the software giant.
Investors will get some confirmation of this when the company reports second quarter fiscal 2022 earnings results after the closing bell Wednesday. Wall Street analysts have reversed some of the pessimism that has hurt Salesforce stock heading into its earnings report. Down nearly 26% year to date, the company’s valuation is seen as more attractive amid the recent correction, especially since the company has shown no ill effects from macro conditions.
Not only has Salesforce's quarterly revenue growth maintained a growth pace in the mid-20s, Salesforce has grown its CRM market share during the downtrend. The the first quarter, the company revenue grew 24% year over year, easily surpassing the 19% growth rate analysts expected. Heading into this quarter, investors should expect another strong beat. Analyst Brian White of Monness, Crespi, Hardt has a Buy rating and a $225 price target on Salesforce, expecting a 20% upside.
Salesforce is "uniquely positioned" to capitalize on the digital transformation trend that so many companies are undergoing,” White noted. The analyst highlighted that, although expected revenue growth could slow in the quarter to $7.69 billion, it would still reflect a 4% sequential increase. The company’s SaaS business model and its customer relationship management continues to be industry standard. But on Wednesday investors will focus on Salesforce’s billings and booking metrics to assess the strength of the business in the quarters ahead.
For the three months that ended July, Wall Street expects the San Francisco-based company to earn $1.03 per share on revenue of $7.7 billion. This compares to the year-ago quarter earnings of $1.48 per share on revenue of $6.34 billion. For the full year, ending January, earnings are projected to decline 0.7% year over year to $4.75 per share, while full-year revenue of $31.77 billion would rise 19.8% year over year.
The company’s SaaS business model and its customer relationship management continues to be industry standard. The stock’s performance does not reflect the sustained growth in the company’s business. Salesforce's four major business segments are each growing strongly: Sales Cloud, Service Cloud, Platform and Marketing & Commerce Cloud. The latter has been the main driver of Salesforce’s subscription growth and its revenue stream.
What’s more, despite the emergence of competitive threats from the likes of Workday (WDAY) and Snowflake (SNOW), Salesforce's four major business segments continue to grow from the digital transition as companies strive to get closer to the consumer and optimize their operations. The company’s ability to meet complex business problems has been the key differentiating factor. The management believes the current total addressable market to to be $284 billion. And the fact that its full-year revenue estimate of $32 billion highlights the opportunity that still remains.
Over the past several quarters, it has secured more of this opportunity. In the first quarter, Salesforce beat on both the top and bottom lines, reporting adjusted EPS of 98 cents per share on $7.41 billion in revenue, topping consensus estimates for 94 cents share on revenue of $7.10 billion. During the quarter, it produced $3.68 billion in cash, ending the nine-month period with a cash stockpile of $13.5 billion. In other words, there are no signs of it slowing down. On Wednesday, for the stock to regain its uptrend, Salesforce will need to show continued strength and momentum in its core business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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