Salesforce Shares Get a Lift
SAN FRANCISCO -- Shares of Salesforce.com (CRM) - Get Report rose sharply Thursday following a strong earnings report, despite caution sounded by several sell-side analysts.
Shares jumped $6.31, or 10.1%, to $68.97 before falling back to $66.89 in recent trading. The stock set a 12-month high of $70.17 in early May. Overall, shares have appreciated 49% in the past year and are trading at 163 times forward earnings.
The one-year consensus price target on the stock is $70, according to Thomson Reuters.
Deutsche Bank raised its price target Thursday to $85 from $80, according to Briefing.com. And Jefferies upgraded Salesforce to a buy with a $77 price target, from a previous target of $49.
JMP Securities analyst Patrick Walravens cited several positive signs from Wednesday's report, including healthy cash generation. Cash flow from operations grew 128% year over year, and international sales rose to 28% of revenue vs. 23% one year ago. "We believe the international opportunity is significant," he wrote. Also, attrition rates remain at less than 1%.
But some analysts issued warnings. "Given the stock's valuation, there isgreater downside risk than upside potential to Salesforce.com," wrote Goldman Sachs analyst Sasa Zorovic. He reiterated his sell rating and $53 price target.
"Most importantly ... bookings growth was weak -- down 34% sequentially, and deferred revenue of $470 million was down 2% sequentially," the first decline in the company's history, Zorovic wrote. Salesforce is an investment banking client of Goldman Sachs.
"Behind the headline numbers, deferred revenues declined sequentially for the first time in over five years," wrote Friedman, Billings analyst David Hilal.
"We cannot help being concerned about the momentum of the company's bookings," particularly as competitors enter the field, Hilal wrote. "We continue to think that, fundamentally, Salesforce.com's business will come under pressure from the likes of
Microsoft
(MSFT) - Get Report
,
Oracle
(ORCL) - Get Report
and
SAP
(SAP) - Get Report
.
Hilal maintained his $44 price target on the stock.
Microsoft earlier this year fully launched its Dynamics Live CRM to the market, while SAP delayed the full rollout of its on-demand software until 2009.
"I haven't been up against
Dynamics Live CRM in a customer or prospect site," Salesforce Chairman and CEO Marc Benioff said during the conference call Wednesday. "If we see it becoming consequential or lose a deal to it, I'm sure Microsoft would let us know.
"Microsoft is trying to deliver a first-generation product, when we're delivering third generation today," Benioff said. "There is very little comparison between any service they have ... and what we're offering."
Wedbush Morgan analyst Michael Nemeroff advised investors to wait for a better entry point before buying shares of Salesforce. The sequential decline in deferred revenue "gives us pause," despite a strong first quarter coupled with higher guidance. The firm makes a market in shares of Salesforce.
In the absence of bookings disclosures, which would reveal the contract value of deals signed in the quarter, "we are forced to assess the health of Salesforce.com's business by scrutinizing the balance sheet," Nemeroff wrote. For Salesforce's subscription-based business model, first-quarter revenue could stem from bookings signed as far back as the first quarter of 2007, he added.