Stocks

Salesforce Earnings Preview: Shares Fall As CEO Sells Shares

Salesforce is scheduled to release its next earnings report on Nov. 18, and shares tumbled today following news that a number of insiders are selling off the stock. Within the last three weeks, Parker Harris, Chairman and CEO Marc Benioff, Chief Financial Officer Mark Hawkins, and President of Sales and Customer Success Maria Martinez all unloaded some shares, according to filings with the Securities and Exchange Commission.

Salesforce Earnings Preview: Shares Fall As CEO Sells Shares

Shares of Salesforce dipped by as much as 3.5% to $75.56 per share during afternoon trading hours today.

Insiders unload Salesforce shares

The biggest inside seller of Salesforce shares is Benioff, who sold more than 80,000 shares in a series of 14 transactions earlier this month. He also unloaded even more shares throughout the month of October. However, he still remains a huge shareholder in the company with more than 37.36 million shares under his direct ownership.

Harris has been exercising options and then unloading some shares, but he still owns more than a million shares indirectly through family trusts. Martinez exercised some options and sold some shares as well but still directly owns more than 26,000 shares of Salesforce, while Hawkins still owns more than 4,400 shares after exercising some of his options and selling some shares as well.

What to expect in Salesforce’s earnings report

Salesforce is expected to report adjusted earnings of 19 cents per share and $1.7 billion in revenue for the third quarter of fiscal 2016. Credit Suisse analyst Philip Winslow expects the cloud service provider to report deferred revenue, billings, and cash flow that are higher than expected. He noted that the firm’s Sales Cloud has shown solid growth despite its maturity and that Service Cloud is also performing well. He also notes that management has been focusing on margins.

Winslow reminds us that management reiterated their previous guidance of between 125 basis points and 150 basis points in expansion for the company’s operating margin in fiscal 2016, but he thinks this is conservative. He believes Salesforce is the “most leveraged” across his coverage universe in terms of “the massive refresh and expansion cycle” in the business to business and business to customer relationship segments.

Will Salesforce become an acquisition target?

The Credit Suisse analyst also believes that Salesforce might become an acquisition target, which he says provides a “favorable” risk/ reward. He estimates that the firm’s enterprise value at $73.55 per share. But when adding the standard 2.4 error, he said the trend model produces a price of $93.72 per share.

Screenshot_12

Graph is courtesy Credit Suisse.