Salesforce.com, Inc. (NYSE:CRM) will report its fourth-quarter earnings after Tuesday’s bell, and based on the charts, it looks like investors are optimistic. CRM stock has jumped nearly 20% for the year-to-date.
But the markets have broadly been in bull mode of late, with plenty of participation coming from the tech sector. And investors still have been harsh when expectations haven’t been met — just ask Hewlett Packard Enterprise Co (NYSE:HPE).
For the current quarter, investors expect Salesforce earnings of 19 cents per share, which would be in line with last year’s numbers. Meanwhile, revenues are forecast to hit $2.28 billion, up about 26% on a year-over-year basis.
But don’t expect a beat to be an automatic green light for investors. Salesforce reported a beat-and-raise Q3 back in November, yet CRM stock went on to drop from $77.77 to $68.41 over a couple of weeks.
The Cloud and CRM Stock
Salesforce.com has a quality platform that should continue to benefit from the mega-shift to cloud computing. According to a report from Gartner, this trend is expected to affect more than $1 trillion in information technology spending by 2020.
CRM has benefited from its laser focus on the cloud opportunity, which stretches back to the late 1990s — far earlier than most people even gave the cloud a second thought. But the payoff has been substantial, driving Salesforce to a $57 billion market cap.
But there are some risk factors to keep in mind.
Early on, Salesforce got some help from the slow response of other tech operators. Many companies were reluctant to disrupt their existing lucrative contracts and arrangements. After all: Why rock the boat?
But the impact of competition on CRM stock has been too overwhelming to ignore. Oracle Corporation (NYSE:ORCL), International Business Machines Corp. (NYSE:IBM), SAP SE (ADR) (NYSE:SAP) and others have ramped up their cloud efforts both organically and through acquisitions.
Competition is a threat to any company, but the pack is closing in on CRM awfully quickly, and that could dampen the growth path.