Salesforce Investors Didn't Love Guidance: What Wall Street Is Saying

Perhaps RBC Capital Markets represented Wall Street's aggregate takeaway best: "Nice beat, conservative guide, that's the stock we like to buy."
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After Salesforce beat revenue and earnings estimates and issued mixed guidance on its third-quarter print, the stock eased. But analysts have come away largely positive. 

The stock fell 1.8% to $158.86 Wednesday at last check. 

Adjusted earnings per share for Q3 2019 came in at 75 cents, up 23% and beating Wall Street estimates of 67 cents. Revenue was $4.5 billion, beating analysts' estimate of $4.44 billion and growing 33% year-over-year. Subscription and support revenue, which account for the majority of the company's revenue, was $4.24 billion, beating estimates of $4.16 billion and growing 32%. Billings were $3.89 billion, beating estimates of $3.81 billion.

Revenue guidance for fiscal year 2020 beat the forecast, but 2021 revenue guidance was weaker. The company expects 2020 revenue of $16.99 billion to $17 billion, beating the forecast of $16.92 billion. But the company expects 2021 revenue of between $20.8 billion and $20.9 billion, missing hopes for $20.95 billion. Salesforce is looking for 2020 adjusted EPS of between $2.89 and $2.90, better than analysts' expectations of $2.86.

Here's what analysts said. 

Morgan Stanley, Overweight, Price Target Raised From $180 to $197

"The 20%+ organic growth in current remaining performance obligation bookings, 30%+ growth in trailing 12 months free cash flow, accelerating growth in recent acquisitions and solid demand indicators out of Dreamforce all paint a picture of durable 25%+ free cash flow growth at CRM. While the decelerating CRPO bookings growth implied in the Q4 guidance from management may stoke investor concerns on the durability of growth at Salesforce, we'd look at any weakness as a buying opportunity. The preponderance of evidence – Q3 results, partner feedback from Dreamforce, strong execution to recent acquisitions – suggests Salesforce is well positioned to sustain momentum into Q4. We roll forward our valuation to calendar year 2021, combined with increasing estimates, takes our PT to $197. 

- Keith Weiss 

Goldman Sachs, Buy, Price Target Maintained at $191

"Given the strong quarter, the recent Analyst Day, and the unchanged annual revenue guidance, we would not expect a strong reaction to the print either way from investors. We continue to view Salesforce as a strong strategic asset, with high potential for durable, profitable growth. We update our estimates to reflect the quarter and updated outlook from the company."

- Heather Bellini

RBC Capital Markets, Outperform, Price Target Maintained at $200

"We believe the company is benefiting from healthy end-market demand across its portfolio, and continue to view CRM as a durable, multiyear 20%+ growth story. On CRPO, which we consider to be the best forward-looking measure of the business, CRM reported $12.8B (28% year-over-year), beating consensus expectations of $12.46B (24.6% year-over-year), as well as delivering the strongest beat relative to guide (2.8%). While some investors may point to CRPO guidance for 4Q of 21% year-over-year (16% organic) as being weaker than expected, we believe the metric is conservative. As stated in the previous paragraph, the company pulled forward some renewal activity from Q4 into Q3. Additionally, we believe the company is taking a conservative stance having never guided CRPO in a 4Q period before and 4Q is the biggest quarter. Nice beat, conservative guide, that's the stock we like to buy."

- Alex Zukin

Wedbush Securities, Outperform, Price Target Maintained at $192  

"Salesforce reported an impressive 3Q revenue beat, with revenue up 33% year-over-year (+21% organic) and $67 million ahead of consensus. Management reiterated fiscal year 2020 revenue guidance, which was raised two weeks ago at Dreamforce. Investors may be disappointed with below-consensus guidance for 4Q EPS and CRPO, as well as the initial 1Q revenue outlook. We’re not concerned about these secondary guidance elements, which reflect expenses associated with the 4Q Dreamforce conference, pull-forward of 4Q renewals into 3Q, and likely conservatism concerning Tableau’s license seasonality. 3Q execution points to strong fundamentals, and we’re optimistic about cross-selling of Tableau into Salesforce’s large base. Approaching a likely strong 4Q, with the decks cleared for fiscal year 2021 upside and shares trading at 6.6 times enterprise value-to-calendar year 2020 expected revenue, we like the current entry point." 

- Steve Koenig

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