Salesforce.com Inc. is expected to show strong results from its Dreamforce quarter Tuesday, but after a storm of poor tech forecasts put “bear goggles” on investors, the cloud-software company’s outlook will be the most closely watched disclosure.
Salesforce CRM, +2.42% is scheduled to report earnings after the market closes Tuesday. Analysts largely report healthy channel checks following Salesforce’s bullish annual Dreamforce conference in September, where the company revealed a Siri-enabled Einstein product following its announcement of a new enterprise partnership with Apple Inc. AAPL, -0.11% . Salesforce’s Einstein uses artificial intelligence to provide predictions and recommendations based on a company’s business processes and customer data, and faces competition from rival Microsoft Corp. MSFT, +1.38%
Most analysts agreed that Salesforce shouldn’t have trouble with meeting or beating third-quarter expectations, but the fourth quarter is going to be much tougher. Salesforce’s billings outlook will be under pressure given last year’s big fourth quarter.
Cowen analyst J. Derrick Wood, who has an outperform rating and a $180 price target, said investors have been concerned “for several months now” about the tough comparison that Salesforce faces in the fourth quarter.
Salesforce is expected to post fourth-quarter billings of $6.81 billion, an increase of 22.6% from a year ago, according to FactSet.
Monness Crespi analyst Brian White expects that no matter what Salesforce forecasts, the recent downward momentum on tech stocks may win out over fundamentals.
“Although Salesforce gave off bullish vibes at Dreamforce in late September and we believe the company is positioned better than ever in the SaaS world, the market has grown more treacherous since then and the bar raised on what constitutes a strong quarter,” White, who has a buy rating and a $170 target price, said.
“Given the unforgiving tech tape that we find ourselves in at the moment, the market is now wearing ‘bear goggles’ and searching for any excuse to go negative on a company.”
Earnings: Of the 37 analysts surveyed by FactSet, Salesforce on average is expected to post adjusted earnings of 50 cents a share, down from the 53 cents a share expected at the beginning of the quarter. Salesforce forecast 49 cents to 50 cents a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 55 cents a share.
Revenue: Wall Street expects revenue of $3.37 billion from Salesforce, according to 34 analysts polled by FactSet. Salesforce predicted revenue of $3.36 billion to $3.37 billion. Estimize expects revenue of $3.39 billion.
Stock movement: Following Salesforce’s earnings report in late August, shares have fallen 20.2% as of Wednesday’s close, compared with a 9.1% decline in the S&P 500 index SPX, +0.30% and a 14% drop in the tech-heavy Nasdaq Composite Index COMP, +0.92% over the same period. Recently, software stocks and Salesforce shares had their worst day in nearly three years in Nov. 19’s tech selloff.
What analysts are saying: Of the 43 analysts who cover Salesforce, 39 have buy or overweight ratings, four have hold ratings and no one has a sell or underweight rating, with an average price target of $172.80.
Jefferies analyst John DiFucci, who has a buy rating and a $189 price target, said Salesforce hitting the consensus for its fourth-quarter billing outlook is “certainly achievable.”
“However, we note that CRM could guide below expectations, which it sometimes does (and tends to subsequently beat) due to what we view as a conservative approach to guidance,” DiFucci noted. “Regardless, we believe that the pipeline is robust, though the 4Q compare is relatively difficult after several years of strong finishes to the year.”
Instinet analyst Christopher Eberle, who has a buy rating and a $181 target price, reminded investors that Salesforce will only be providing guidance for billings going forward, or expected revenue over the next 12 months, which he views as “an improved metric, as it reflects unbilled expected revenue, compared with unearned revenue, which only reflected billed business.”
