On Jul 04, we retained our Neutral recommendation on the cloud computing and software company, Salesforce.com (CRM).
On May 24, Salesforce posted modest first-quarter 2014 results with revenues improving on a year-over-year basis and loss per share increasing compared to the year-ago quarter. The quarter’s adjusted loss per share of 7 cents was greater than the Zacks Consensus Estimate of 1 cent loss per share.
Salesforce delivered a negative earnings surprise last quarter, which took the four-quarter average to a negative 244.4%. Currently, Salesforce has a Zacks Rank #3 (Hold).
Why a Neutral Stance?
Revenues moved up by 28.3% year over year, as the company witnessed continued demand across all geographies and all of its cloud solutions, supported by a decline in the attrition rate. The company witnessed an increase in revenues across all its business segments, with the Subscription and Support revenues increasing the most. Gross profit expanded 25.7% year over year to $683.6 million. Gross margin was 76.6%, down 160 basis points from the year-ago quarter, as cost of sales continues to increase.
However, continuous increase in research activities has resulted in the increase in R&D expenses. This was one of the main reasons for the 28.6% year over year increase in operating expenses to $728.2 million
The company provided a decent second-quarter 2014 guidance and expects to generate revenues in the range of $931.0 million to $936.0 million. Moreover, Salesforce expects GAAP net loss per share to be in the range of 7 cents to 6 cents. Apart from this, the company also expects non-GAAP earnings per share in the range of 11 cents to 12 cents.
We believe that the higher number of deal wins as well as the geographical contributions were encouraging. Also, the company’s diverse cloud offerings and a better spending environment projected by Gartner are positive. On the other hand, the continued weakness in Europe, currency headwinds, continued operating margin contraction and the economic challenges in Japan are concerns for the company.
Over the last 30 days, the Zacks Consensus Loss Estimate for fiscal 2014 widened by 1 cent to a loss per share of 8 cents. Again, for the fiscal year 2015, the earnings per share estimate droppedby 1 cent to a level of 2 cents.
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