, Inc. (CRM) Stock Flirts With All-Time Highs After Tepid Earnings

CRM produced a decent quarter, which Wall Street initially shrugged

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor, Inc. (NYSE:CRM) has been stuck in a stubborn range between $86 and $91 for most of the summer. And while Tuesday’s second-quarter earnings report didn’t satiate Wall Street’s appetite as much as hoped, it did push CRM stock out of the mud., Inc. (CRM) Stock Flirts With All-Time Highs After Tepid Earnings
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Salesforce did post a solid quarter, for what that’s worth. Revenues of $2.56 billion were up 25% on a year-over-year basis, and were good enough to beat Wall Street estimates for $2.52 billion. Meanwhile, adjusted earnings of 33 cents per share were up from 32 cents in the year-ago period — the same number Wall Street’s pros expected the company to report.

Salesforce also increased its guidance for the full year, projecting earnings between $1.29 and $1.31 per share on revenues in a range from $10.35 billion to $10.4 billion.

Nonetheless, CRM stock dropped by about 2% in Tuesday’s early after-hours trade. It is now up 70 basis points intraday Wednesday.

Some of the other highlights from Salesforce’s Q2 report:

  • Cash from operations came to $331 million, up 32% on a year-over-year basis. In all, the company has $3.5 billion in the bank.
  • The company entered a strategic technology agreement with Dell Technologies Inc (NYSE:DVMT). The deal will expand the use of Salesforce’s sales, service and marketing apps and CRM platform.
  • announced a $50 million venture fund that will focus on investments in system integrators.
  • For the fourth consecutive year, International Data Corporation named the No. 1 provider of customer relationship management services. And in fact, last year, CRM grew its market share by more percentage points than all other providers combined.
  • launched Einstein Analytics, which provides services for advanced visualizations and predictive capabilities for sales, service and marketing.

From a technical standpoint, Tuesday evening’s move in CRM stock shouldn’t trigger much in the way of worry. Shares still are above all their major moving averages, nor does the decline threaten the stock’s upward price trend of the past few months. The stock’s Relative Strength Index (RSI) should remain in positive territory, too.

On a fundamental basis, the fact remains that CRM continues to pump up the growth at an impressive rate. Consider that it is the first enterprise cloud software company to hit the $10 billion revenue run rate milestone.

But it appears that investors were expecting even more from the quarter. And this should not be a surprise. Let’s face it, tech stocks have been bubbly this year — and this means that Street has put up a high bar for many leading companies like, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL). In light of this, the latest earnings season has been one of mostly disappointment and lagging stock prices.

Although, regarding CRM stock, there is also concern about the competitive environment. Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NYSE:ORCL) have definitely been showing lots of traction. And who knows, we may see turnarounds at companies like International Business Machines Corp. (NYSE:IBM). The cloud opportunity is too important to lose and legacy operators are pouring substantial amounts into their R&D and acquisitions.

This is why it is important for CRM to double down on its lead, such as by focusing on next-generation technologies like artificial intelligence (AI) and predictive analytics. These are the kinds of systems that customers consider to be high priorities. After all, the benefits go beyond just saving costs. AI and predictive analytics can help a company find new customers or derive opportunities from the existing base.

Now CRM definitely has some major advantages. The company is the top-of-mind brand for the cloud, has a massive customer base and a treasure drove of valuable data. Such factors are not easy to replicate.

But such things are longer-term in nature. In the meantime, CRM stock could remain in a range near all-time highs, especially since it looks like investors have already factored in quite a bit of the growth story, with the shares up about 36% for the year so far and the forward price-earnings multiple at a hefty 55X.

Tom Taulli runs the InvestorPlace blog IPO Playbook and operates, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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