Salesforce Earnings Slap Around CRM Stock

by Tom Taulli | November 19, 2013 10:46 am

Salesforce.com (CRM[1]) founder, chairman and CEO Marc Benioff was upbeat on yesterday’s Salesforce earnings call. But CRM stock investors did not share his enthusiasm, as seen in early trading. Salesforce stock fell as much as 5% this morning.

CRM stock investors shrugged off strong revenues and instead focused on the lackluster Salesforce earnings. For the most recent quarter, revenue tallied $1.08 billion — a 36% year-over-year gain and better than the $1.06 billion consensus estimate. Plus, it was the first time CRM hit the $1 billion mark for a quarter.

But Salesforce earnings were underwhelming. Keep in mind that CRM continues to plow heavy amounts into sales, marketing and R&D. So during Q3, adjusted Salesforce earnings came to 9 cents per share of CRM stock.

That was in-line with expectations, but CRM management also noted that Salesforce earnings are expected to run into more headwinds in the near future. The current quarter forecast is for adjusted Salesforce earnings of 5 cents to 6 cents per share of CRM stock. The Street was looking for 7 cents a share.

To find growth — and keep boosting Salesforce stock — CRM has been pushing acquisitions. In fact, it’s largest deal was for ExactTarget and was completed back in July for $2.5 billion in cash. The company is a top player in the cloud-based marketing space, such as with emails and social media. CRM believes there is synergy with its core customer relationship management (CRM) business as well as large customer base.

At the same time, Salesforce is trying to keep up its own innovation to keep CRM stock chugging higher. For example, at this week’s Dreamforce conference, CRM has already announced some interesting initiatives. One is partnership with Hewlett-Packard (HPQ[2]) for something called the “Salesforce Superpod.” This is a separate instance of the CRM cloud infrastructure, which will provide sophisticated services for mega clients.

CRM also launched Salesforce1, which allows customers to build applications that are available on mobile devices for Apple’s (AAPL[3]) iOS and Google’s (GOOG[4]) Android operating system. To kick things off, CRM has snagged initial partners like Concur (CNQR[5]), DropBox, LinkedIn (LNKD[6]) and Workday (WDAY[7]). This is encouraging since CRM mobile efforts have been fairly lackluster.

Yet these initiatives will likely take some time to get traction, which is not good new for CRM stock investors who have come to expect nice growth rates. After all, Salesforce stock is currently trading at a forward price-to-earnings ratio of 104.

Given this, Benioff will be under lots of pressure to find ways to keep up the momentum — or CRM stock will keep struggling.

Tom Taulli runs the InvestorPlace blog IPO Playbook[8]. He is also the author of High-Profit IPO Strategies[9], All About Commodities[10] and All About Short Selling[11]. Follow him on Twitter at @ttaulli[12]. As of this writing, he did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2013/11/crm-stock-salesforce-earnings/

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