Salesforce.com, Inc. (NYSE:CRM) has been one of the year’s notable tech stocks. So far in 2017, CRM stock has notched nearly 20% in gains … but that performance is being paused following Tuesday’s evening’s fourth-quart earnings report.
It looks like Wall Street has factored in all the good news.
CRM stock is off about 2% in Tuesday’s early aftermarket trade despite Q4 beats on the top and bottom lines. For the fiscal fourth quarter, Salesforce posted revenues of $2.29 billion, up 27% year-over-year. Adjusted earnings came to 28 cents. Both were higher than the consensus mark of $2.39 billion on the top line and 25 cents per share on the bottom line.
However, guidance was on the tepid side, causing a few CRM stock holders to head for the exits.
For Q1, Salesforce is forecasting revenues of $2.34 billion to $2.35 billion and earnings of 25 cents and 26 cents per share. Analysts were looking for revenues of $2.365 billion and profits of 30 cents per share.
Here are a few other highlights from the Salesforce earnings report:
- Full-year operating cash flows jumped by 29% to $2.16 billion, and there was a 50% increase in Q4 to $706 million.
- Salesforce added features like lead-to-patient conversion, risk stratification and advanced segmentation to its Health Cloud platform.
- For fiscal 2018, CRM expects to generate more than $10 billion in revenues, which would make it the fastest enterprise software company to ever reach this milestone ever.
Technically speaking, CRM stock still is in a strong position, trading above its major moving averages. While its Relative Strength Index (RSI) is high in the mid-60s, it has worked off overbought readings from the past month.
Headwinds for CRM Stock
UPDATE: As I’ve noted previously, Salesforce stock will likely come under pressure because of the relentless competitive environment. During the past couple years, the old-line tech operators like Oracle Corporation (NYSE:ORCL), SAP SE (ADR) (NYSE:SAP), International Business Machines Corp. (NYSE:IBM) have ramped up their cloud efforts via acquisitions and building their own systems.
But the old-line tech operators are also getting more aggressive on pricing, and this could be a major risk for CRM stock. For the most part, the perception is that the company’s offerings are far from cheap (a complaint I hear often from customers).
Meanwhile, there are plenty of startups and mid-tier tech companies that are making inroads into the cloud. A prime example is ServiceNow Inc (NYSE:NOW), which is a provider of cloud-based IT management tools. However, over the past few years, the company has been expanding its platform, such as by offering CRM-like features.
Salesforce also has relied heavily on dealmaking to keep up its growth ramp. In fact, the company has made an acquisition roughly every month for the past year or so.
But managing the complexities and entanglements here won’t be easy. And historically, hyperactive tech M&A isn’t good. Great companies like HP Inc (NYSE:HPQ) and Cisco Systems, Inc. (NASDAQ:CSCO) have stumbled because they got too overeager to say “yes” to a deal.
Based on tonight’s action in CRM stock, the valuation looks toppy. Given the risks, there’s probably no need to pick up shares right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A Bundle. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
