Just like the previous fourteen quarterly reports, Salesforce.com, Inc. (NYSE:CRM) managed to beat estimates for its recently completed fourth quarter of fiscal 2018.
Salesforce.com stock edged a little higher following the release of the earnings report, though not wildly so. Don’t let the lack of a knee-jerk bullish response fool you, though. This company is the prototypical picture of consistent fiscal growth, and that’s not apt to change anytime soon.
As Evercore ISI analyst Kirk Materne put it even before Q4’s numbers were posted “The company has multiple growth vectors across its various clouds and is just starting to build critical mass outside of the U.S.”
Salesforce.com Earnings Recap
For the quarter ending in January, cloud-based customer management software company Salesforce.com turned $2.85 billion worth of revenue into operating earnings of 35 cents per share.
Both were well up from year-ago comparisons of $2.3 billion and 28 cents per share, respectively. Better still, both numbers topped analyst estimates for a profit of 33 cents per share and a top line of $2.81 billion.
It was the fifteenth consecutive quarter the company topped earnings estimates.
The growth also extends a long-standing streak of progress, but as of the fourth quarter, margins are starting to widen dramatically. Cash flow of $1.05 billion was up 49% year-over-year, and non-GAAP net income grew to the tune of 34%.
It was the pivotal quarter many sidelined investors had been waiting to see, although the stock didn’t budge much before the post-close report, and was only up a bit in after-hours action, it’s now trading 4.5% higher at Thursday’s open.
CEO Marc Benioff commented:
“We had an outstanding quarter of growth that propelled Salesforce over the $10 billion revenue milestone for the year. No other enterprise software company has achieved this scale faster than Salesforce. Our relentless focus on customer success continues to strengthen our position as the global leader in CRM.”
For the whole year, revenue of $10.5 billion was up 25%, and non-GAAP net income was up 40%.
Looking Ahead for CRM Stock
While the company topped analyst expectations, the earnings beat didn’t likely shock anyone. Salesforce.com stock had gained 40% over the course of the year leading up to Wednesday’s announcement, reaching yet another record high during Wednesday’s trade.
That rally confirms what most investors know as well as underscores something Benioff hinted at — no other enterprise software company has grown this rapidly. That’s largely because no other enterprise software company figured out how to do cloud-based CRM before “cloud computing” was commonplace. The next few years may not be quite as easy as the past few have been.
Microsoft Corporation (NASDAQ:MSFT) is one of those potential headwinds. The 2016 acquisition of professional networking website LinkedIn has not only set the stage for new products and services, but new kinds of products and services. Among them are customer relationship management tools that look, feel and act an awful lot like Salesforce’s products.
Salesforce is hardly resting on its laurels waiting to be lapped, however. It’s been working with Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) to better integrate Google 360 analytics with Sales Cloud and Marketing Cloud, and is even working to add an artificial intelligence to its menu by working with the A.I. platform Watson, from International Business Machines Corp. (NYSE:IBM).
Prior to Wednesday’s earnings release, RBC Capital said of Salesforce.com’s relationship with IBM “We believe investments around Einstein/AI are beginning to materialize,” suggesting meaningful revenue was on the radar.
To that end, the company is calling for revenue of between $2.925 and $2.935 billion for the quarter currently underway… enough to anticipate operating income of between 43 and 44 cents per share. For the full year, the company says it should earn between $2.02 and $2.04 per share on revenue of between $12.0 and $12.6 billion.
Those revenue outlooks are roughly 23% and 20% better on a year-over-year basis, respectively, with even bigger growth guidance for the company’s bottom line. Last year, per-share profits were only $1.35.
Bottom Line for Salesforce.com Stock
Would-be buyers should prepare to pay a premium for Salesforce.com stock, though it may be worth it in the end. While Microsoft is arguably the closest competitor, it’s a distant second. And, Benioff recognizes the investments (of time, energy and money) he must make to keep the Microsoft/LinkedIn duo at a distant second.
Although prudent investors might want to wait for a pullback before stepping in, the bigger trend hasn’t opened that window too often or too widely in a long time, and for good reason.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.