, inc. Earnings Preview: Strong Results Expected

Updated on, inc. (NYSE:CRM) stock turned lower in early trading on Tuesday ahead of the earnings release scheduled for after the bell on Wednesday. The consensus pegs Salesforce earnings at 34 cents per share on a non-GAAP basis on $2.81 billion in revenue. Management guided for Salesforce earnings to be between 32 cents and 33 cents per share and between $2.8 billion and $2.81 billion in revenue.

Oppenheimer analyst Brian Schwartz raised his target price for Salesforce stock from $125 to $135 and maintained his Outperform rating going into Wednesday’s earnings release. He expects the Salesforce earnings results to be strong enough to support his higher price target, citing his firm’s checks of the company’s business. He explained that they were even stronger than the already-positive trends revealed earlier in his firm’s customer and IT spending surveys.

Schwartz believes Salesforce beat the consensus for billings growth in its FQ4, and he notes that there was strength across the rest of the software-as-a-service industry during the quarter as well. He also said that valuation multiples in the industry have increased recently, which should also be good for Salesforce stock.

Macquarie analyst Sarah Hindlian also expects the Salesforce earnings release to reveal a strong FQ4. In a recent report, she noted several strong impacts that bode well for the company. For example, she said that one of the company’s major partners said that Service Cloud is especially strong due to the Demandware integration, which is leading toward an increase in B2C sales. Another partner told her firm that B2B services are also trending higher than expected.

Salesforce held its annual Dreamforce conference later than usual, and Hindlian said that the company’s partners felt the later timing helped its FQ4 earnings results. Usually, Dreamforce is held during the third quarter, but this past year, it fell during the fourth. Further, she explained that Salesforce’s international business benefited after it went live in Sydney and APAC on Amazon Web Services. The company also reportedly did well in the EMEA region and Canada. The Macquarie analyst also found “early stage interest” in the Salesforce and Google partnership.

Schwartz’s Salesforce earnings preview note also included a look ahead at drivers for this year. He expects 2018 to be another strong year for the company riding on a stronger macro environment, which he expects to result in faster growth in IT spending. He also believes demand for applications will be shifted forward this year due to the “ramping hybrid IT investment cycle.” Further, he expects most large-cap software firms, including Salesforce, to benefit from the tax reform law that was passed in 2017.

He feels that if the company’s growth beats management’s expectations, they will probably reinvest the upside instead of opting to boost margins. As a result, he sees any potential upside to margins this year as a positive surprise and a driver for an upward re-rating in the company’s stock price.

The day before the Salesforce earnings release, the company’s stock tumbled by less than 1%, falling as low as $115.79 in intraday trading. However, Salesforce stock also remains close to its record high of $117.61.

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