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Salesforce Earnings Head for the Clouds

NEW YORK ( TheStreet) -- Expectations for the high-flying Salesforce.com's (CRM - Get Report) second-quarter earnings release, which takes place after the close of the stock market Thursday, are particularly lofty this time around. The shares have rocketed 45% this year.

Led by CEO Marc Benioff, Salesforce has become a leader in the cloud computing industry, providing software-as-a-service (SaaS) to companies. Salesforce has expanded its social-media offerings, buying Radian6 and recently purchasing Buddy Media for $689 million, as it takes on rivals Oracle (ORCL - Get Report) and SAP (SAP - Get Report). That acquisition closed Aug. 13.

Along with Buddy Media and Radian6, Salesforce has made a big push into social monitoring, with what it calls its Radian6 social-monitoring cloud, which aggregates data from Facebook (FB), YouTube and Twitter. Salesforce also owns Chatter, a private social network for companies.

Despite the popularity of Salesforce's cloud offerings, valuation has always been something of a concern for Wall Street, with Salesforce trading at 75 times 2013 earnings estimates, according to Yahoo! Finance. But that hasn't stopped analysts from increasing their estimates. Despite concerns over valuation, Salesforce is one of TheStreet's three tech stocks for 2012.

Think Equity analyst Bradley Sills raised his price target to $165 from $155 after meeting with Salesforce resellers. He also increased his second-quarter earnings estimates, and now expects earnings of 40 cents per share on $731.6 million in revenue.

Sills says Salesforce's deal pipeline will remain strong, with most of its partners expecting to extend contracts, with potential for expansion and add-on services. "We believe that pipeline strength bodes well for the remainder of the year," Sills wrote in a research report. He rates the shares "buy."

CRM Chart CRM data by YCharts

Piper Jaffray analyst Mark Murphy noted similarities after surveying 42 Salesforce partners. He noted they finished, on average, 4.6% above plan, which suggests a healthy pace of business. He believes the real strength lies not only in this quarter's results, but the second half of fiscal 2013.

"To illustrate the point, positive feedback on the deal pipeline outweighs negative feedback by a ratio of 5 to 1 across the 42 firms in our survey, including assessments of a deal pipeline that is 'huge and very promising' and 'large deals for closing in Q3,' " Murphy wrote in his note. He rates Salesforce "overweight" with a $207 price target.
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