What You Missed Out by Overlooking Salesforce (CRM) Stock
Shares of Salesforce.com Inc. CRM have been gaining solid momentum, of late, and even crafted a 52-week high of $135.71 yesterday. One of the major reasons behind this could be the company’s outstanding first-quarter fiscal 2019 results. Also, encouraging second-quarter and full-fiscal outlook drove its shares higher.
Notably, the company has gained approximately 7% since it reported fiscal first-quarter results on May 29. The stock has outperformed its industry in the year-to-date period. Salesforce has returned 32.6% in the said period, while the industry has gained 17.7%.
Salesforce’s fiscal first-quarter revenues were up 25% year over year to $3 billion and came ahead of management’s guided range of 2.925-$2.935 billion. The reported figure beat the Zacks Consensus Estimate of $2.94 billion as well. Rapid adoption of the company’s cloud-based solutions and acquisition synergies led to the splendid top-line results.
The company reported non-GAAP earnings of 74 cents per share, trumping the Zacks Consensus Estimate of 46 cents. The figure increased more than twofold from the year-ago quarter.
In fact, Salesforce beat the Zacks Consensus Estimate in each of the last four quarters, with an average positive earnings surprise of 19.7%. Backed by the impressive results, the company has issued an upbeat outlook for the second quarter as well as full fiscal.
Let’s take a look at what factors are driving Salesforce’s back-to-back robust quarterly performances.
Buyouts Buoying Top Line
Acquisitions have always been one of Salesforce’s key growth strategies. Over the past two years, the company has closed or was in the midst of as many as 16 acquisitions, worth billions of dollars, including its latest biggest-ever buyout agreement — MuleSoft. These acquisitions have strengthened its position in the customer relationship-management solution-providing space. We expect the acquisition synergies to continue driving Salesforce’s top-line performance in the quarters ahead.
Expanding International Business With Partnerships
Salesforce still generates only about 30% of total revenues from international operations, which is lower than its rivals like Microsoft MSFT or Oracle ORCL composition of around 50%. Nonetheless, the company noted that its partnership agreements with the likes of Amazon and Alphabet for the firms’ cloud services have been helping it expand Salesforces’ international operations.
Earlier, the company used to run its software at its own data centers which had been curbing its growth potentials. However, in 2016, Salesforce decided to utilize the geographical reach of other data-center service providers in order to expand its international business.
The company’s first partnership in this space was with Amazon Web Services in 2016, followed by the next alliance with Alphabet last November. During fourth-quarter fiscal 2018, the company won several deals due to its international-expansion initiatives.
Partner Program Adding Customers
Stellar growth in Salesforce partner certifications has been fueling the company’s top-line results. Notably, the company’s partner certification has witnessed five-time growth over the past four years and more companies are willing to invest in Salesforces’ activities. Accenture ACN has emerged as one of the biggest examples for this. Notably, Accenture is currently a global leader in the Salesforce implementation service space, with more than 11,800 skilled consultants.
The company added and strengthened its relationships with some notable customers during the fiscal first quarter such as Citi, Philips and Santander UK, SoftBank and LUXA among others. We expect the trend to continue and drive the overall financial performance of this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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