Yesterday after the closing bell, Saleforce.com, Inc. (NYSE:CRM) reported earnings per share of 14 cents on $1.44 billion in revenue, in line with what Wall Street was expecting.
Revenue for the three months was up 26% when compared to last year and would have been up 29% if not for currency exchange. CRM Management also noted that deferred revenue rose 32% year-over-year, hitting $3.32 billion.
For the full year, the company posted revenue of $5.4 billion, making it the fastest enterprise software company to surpass the $5 billion mark in sales. Salesforce.com CEO Marc Benioff is proud of that feat, but he has no plans of slowing down anytime soon. Benioff has stated that he would now like to see Salesforce.com become the fastest company to the $10 billion sales mark in the future.
Speaking of the future, Salesforce.com expects revenue of $1.49 billion to $1.51 billion in the coming quarter, which is a 21% to 23% increase year-over-year. CRM is expecting $6.48 billion to $6.52 billion for the full year, roughly a 20% increase over 2014. The company believes diluted non-GAAP earnings per share will be 13 cents to 14 cents for the quarter and 67 cents to 69 cents for the year. GAAP lose per share is expected to be negative 16 cents to a negative 14 cents.
The news sent CRM stock up more than 12% on Thursday. Investors have reason to be happy with Salesforce.com’s performance and growth rates, but anyone jumping on the bandwagon today needs to be aware of the dangers ahead.
Salesforce.com Can’t Maintain Growth Rate Forever
Salesforce.com may have had more than $5 billion in sales last year, but on a GAAP basis the company still lost 42 cents per share. One could argue that the company is spending money to grow and that it’s healthy for the business to be reinvesting in itself. I agree, but Salesforce.com is now a $40 billion business. It’s reasonable to expect something in the way of earnings now.
Compare these figures to the competition: Oracle Corporation (NYSE:ORCL) and SAP SE (NYSE:SAP) are trading at five and four times sales respectively and both have positive earnings, giving them a current price-to-earnings ratio of 18 and 22. Looking into the future, Oracle has a forward P/E of just 13, SAP’s is 18 while Salesforce.com’s is 75 — assuming CRM hits the 69 cents analysts are expecting.
Sooner or later, Salesforce.com will miss expectations and CRM stock will get hammered. That’s the risk with any fast-growing company: Beat earnings, beat the market. But miss earnings, and watch the stock plummet. Investors who look at Salesforce.com’s massive move today and believe in the story should wait for that inevitable pullback.
Remember this: You don’t make money buying great companies at any price, you make money buying great companies at great prices. And, right now, Salesforce.com is not selling at a great price.
As of this writing, Matt Thalman was long CRM.
