CRM Stock Is Losing Steam in the Cloud

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Back in October, I attended the Dreamforce mega conference, which is a critical part of the marketing machine for Salesforce.com, inc. (CRM). The event was packed with more than 150,000 people, which made it difficult just to get around the floor.

Salesforce 185Salesforce showed off the massive scale of the Salesforce.com ecosystem and how far it has come in just a few years.

The question, then, is whether profits and CRM stock is growing as fast as that ecosystem.

Well, the good news is that the company still knows how to crank out growth. In the third quarter, CRM booked a 29% jump in revenues to $1.38 billion, and adjusted earnings came to 14 cents per share — up from a profit of 9 cents per share in the same period a year ago. Wall Street analysts were looking for revenues of $1.37 billion and earnings of 13 cents per share.

Despite this performance, CRM stock still fell about 4%, mainly due to the disappointing guidance. Salesforce expects Q4 revenues at $1.43 billion to $1.44 billion, which is below the consensus of $1.45 billion. The outlook for the company’s 2016 forecast was also light, coming to $6.45 billion to $6.5 billion — whereas analysts were expecting $6.66 billion.

To be fair, that’s not awful guidance. And yes, there are some potential catalysts. Just take a look at the recently launched Salesforce1 Lightning system, which allows for the easy creation of mobile apps. No doubt, the mobile opportunity is still in the early stages for the enterprise.

But perhaps the most notable new offering is the company’s analytics system, Wave. It essentially allows for alerts and dashboards that tie into Salesforce.com data to help better manage a business. (I got a demo of the app while at Dreamforce and it was definitely easy to use). According to the CRM earnings call, it looks like Wave may be the biggest launch in the company’s history. Some of the customers include Verizon (VZ), GE (GE) and EMC (EMC).

Outlook for CRM Stock

CRM stock could still face some headwinds. While international sales have been a key growth driver, this could soon decelerate. Europe continues to be mired in a slow-growth environment, and China appears to be slowing down. At the same time, the strong US dollar is dampening sales because of the negative impact from the exchange rate.

There will also be more pressures from competitors. To this end, companies like Amazon.com (AMZN), SAP (SAP) and Microsoft (MSFT) have been making big inroads with their cloud businesses. But even laggards like IBM (IBM), Cisco (CSCO), Oracle (ORCL) and Hewlett-Packard (HPQ) are investing substantial amounts in their own programs.

Oh, and Salsefoce may face some wildcards, such as LinkedIn (LNKD). The company’s Sales Navigator could be a major threat to customer relationship management franchise of Salesforce.

Finally, the valuation on CRM remains at lofty levels, with a forward price-to-earnings ratio of 82. That ratio is higher than the multiples of Facebook (FB) and LinkedIn, even though these companies are growing much faster!

So, for investors, the weak guidance for Salesforce.com may not be an example of taking a conservative bent. If anything, it may be a warning sign that the company is truly concerned about its growth path, especially as it deals with slowing global economies and intense competition.

In other words, CRM stock could be vulnerable at these levels.

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

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/crm-stock-losing-steam-inthe-cloud/.

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