Salesforce (CRM) Stock: Buyout More Likely After Earnings Blowout

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Salesforce.com, inc. (NYSE:CRM) stock, which has been the subject of intense speculation in recent weeks after rumors that it was exploring a sale surfaced, merely fanned the flames with its explosive first-quarter earnings report late Wednesday.

Salesforce CRM Stock Buyout More Likely After Earnings BlowoutCRM stock roared as much as 5% higher in early trading on Thursday. Before the announcement, Salesforce stock had already returned 18% to-date, walloping the return of the benchmark S&P 500 by 15 percentage points.

So do Salesforce earnings make the possibility of a buyout more or less likely? The short answer is: probably more likely, although whoever’s mulling the possibility should make up their mind soon — before CRM stock rips off another 20% rally.

A Stellar Quarter for CRM

CRM revenues grew 22% year-over-year, coming in just ahead of Wall Street estimates at $1.51 billion versus expectations for $1.5 billion. Non-GAAP earnings of 16 cents per share also topped consensus estimates by 2 cents.

On a GAAP basis, the cloud computing sales management company swung to a surprise profit of $4 million — a net reversal of $101 million from the prior quarter’s $97 million loss. CRM counts stock-based compensation expenses in its GAAP EPS numbers, while non-GAAP numbers exclude those costs.

Not content to merely squash earnings and revenue estimates, CRM stock is also enjoying a boost from management’s brighter full-year fiscal 2016 revenue projections, which Salesforce boosted on Wednesday from a range of $6.475 billion to $6.52 billion, to a range of $6.52 billion to $6.55 billion.

That puts CRM stock on a good trajectory to reach some of its more ambitious goals: CEO Marc Benioff has said he wants Salesforce to become the first business-software company to reach $10 billion in annual sales. Excluding the wildly successful AWS offered by Amazon.com, Inc. (NASDAQ:AMZN), which officially reached the mark in April, Salesforce is the first in its space to reach $6 billion in annual revenues.

What CRM Earnings Mean for a Salesforce Buyout

Simply put, the blowout quarter means that any potential suitor will need to shell out at least $2 billion more to acquire all outstanding shares of CRM stock than it would’ve paid yesterday.

But just who can afford to tolerate day-to-day billion-dollar fluctuations like that? InvestorPlace‘s own Tom Taulli put together a short list when Salesforce takeover rumors first started surfacing in late April:

“A deal may seem kind of outlandish as the market value of CRM stock is about $45 billion, but there is a short list of companies with enough firepower to pull off an acquisition, such as SAP SE (ADR) (NYSE:SAP), Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NYSE:ORCL).”

Oracle Co-CEO Safra Catz coyly suggested that a buyout at the hands of one of its competitors would actually benefit Oracle’s business, so ORCL seems less probable than MSFT or SAP, who are seen as the other most likely contenders.

Setting the possible takeover aside and looking at CRM stock as a discrete entity, it’s clear as day that Salesforce is a uniquely robust company in a growing industry. It’s tough to find anything wrong with Wednesday’s Salesforce earnings report.

Although CRM stock trades for 81 times forward earnings, analysts expect EPS to nearly double in the next two years, so with Salesforce, you get what you’re paying for.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/crm-stock-buyout-salesforce-earnings/.

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