Enterprise cloud computing heavyweight Salesforce.com, Inc. (CRM) stock gained more than 4% in early morning trading on Thursday after reporting a solid all-around third quarter on Wednesday afternoon.
Wall Street was also impressed with CRM’s forward guidance, which painted a rosy view of the San Francisco-based company’s 2016 and 2017 fiscal years.
Let’s take a look at the numbers that had investors rushing to buy CRM stock today.
Q3 Salesforce Earnings
A legitimate concern going into the report was the rising specter of competition … and not just any competition. SAP (SAP), Oracle (ORCL), IBM (IBM) and Microsoft (MSFT) — companies worth a combined $822 billion — are all squaring off against Salesforce and its meager $54 billion valuation.
So it’s only natural that CRM stock would rally when Q3 earnings proved David was still battling Goliath rather efficiently.
Adjusted CRM earnings per share clocked in at 21 cents, up 50% from the same period a year ago and two pennies ahead of Wall Street expectations. Third-quarter revenue also narrowly exceeded consensus views of $1.7 billion, coming in at $1.71 billion instead for an annual growth rate of 23.7%.
And while these numbers were nothing to scoff at, the real catalyst came from upbeat forward guidance — the importance of which I highlighted in my CRM earnings preview just a few days ago.
In the fourth quarter of fiscal 2016, CRM expects EPS between 18 and 19 cents per share on revenue between $1.78 and $1.79 billion. That was right about in line with expectations, but the company’s guidance for fiscal 2017 revenues of $8.1 billion breezed past the consensus view.
CRM has now met or beaten EPS expectations for a remarkable 15 straight quarters.
These are the sorts of numbers that helped facilitate the MSFT takeover chatter — the chatter that eventually ascended to a deafening roar — earlier this year.
Another positive from Wednesday’s report was Salesforce’s deferred revenue, which shot up 28% year-over-year, at a faster pace than revenue itself, which rose just under 24%. Deferred revenue is a key metric for CRM, a subscription business that recognizes revenue over time instead of at the time the initial sale is made.
Importantly, Salesforce still remains on track to crack $10 billion in annual revenue quicker than “any other enterprise software company,” according to CRM CEO Marc Benioff. That won’t happen in fiscal 2016 or fiscal 2017, but even assuming growth rates decline to 20% or the high teens in coming years, Salesforce should easily pass that milestone in fiscal 2019.
Yun Kim, an analyst at Lake Street Capital Markets, expects CRM to continue putting up gaudy numbers as “all large system integrators are actively pitching Salesforce.com’s solutions over that of SAP and Oracle.”
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.