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Salesforce (CRM) to Report Q3 Earnings: What's in Store?

salesforce.com, Inc.CRM is set to report third-quarter fiscal 2016 results on Nov 18. Last quarter, the company's earnings were in line with the Zacks Consensus Estimate. It is worth noting that the company has underperformed the Zacks Consensus Estimate twice in the four trailing quarters, while surpassing once.

Let us see how things are shaping up for this announcement.

Factors at Play

The first half of fiscal 2016 was encouraging for Salesforce, as both the top line and the bottom line improved. Revenues surpassed the consensus mark and increased on a year-over-year basis in both the quarters, primarily backed by growth across all the business segments and Salesforce ExactTarget Marketing Cloud platform.

The higher number of deal wins and geographical contributions were the positives. We expect the rapid adoption of Salesforce1 Customer Platform to boost results in the to-be-reported quarter as well. Overall, the company's diverse cloud offerings and considerable spending on digital marketing remain the catalysts. Moreover, strategic acquisitions and the resultant synergies are expected to benefit over the long run.

Considering the increased customer adoption and satisfactory performances, market research firm Gartner acknowledged Salesforce as the leading social CRM solution provider. We believe that the rapid adoption of Salesforce's platforms indicate solid growth opportunities in the ever-growing cloud computing space in turn, supporting results in the third quarter.

Although the company is growing reasonably in the cloud market, growth prospects have been rationalized to a considerable extent due to intensifying competition from International Business Machines IBM , Oracle Corp. and SAP AG. Moreover, currency fluctuations and increased investments in international expansion and data centers could hurt third-quarter results.

Earnings Whispers

Our proven model does not conclusively show that Salesforce will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at 0.00%. This is because the Most Accurate estimate of 5 cents is in line with the Zacks Consensus Estimate.

Zacks Rank: Salesforce's Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some stocks that you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

TiVo Inc. TIVO , with an Earnings ESP of +12.50% and a Zacks Rank #3.

Penn National Gaming Inc. PENN , with an Earnings ESP of +13.64% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SALESFORCE.COM (CRM): Free Stock Analysis Report

INTL BUS MACH (IBM): Free Stock Analysis Report

TIVO INC (TIVO): Free Stock Analysis Report

PENN NATL GAMNG (PENN): Free Stock Analysis Report

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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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