Should You Go for Salesforce?

Salesforce.com (CRM) announced fourth quarter ended January 31, 2016 total revenue of $1.81 billion, an increase of 25 percent year-over-year from $1.44 billion during the same period last year. The company has also provided first quarter revenue guidance in the range of $1.885 Billion to $1.895 Billion.

Salesforce.com declared fourth quarter of 2016 non-GAAP operating income of $129.7 million or $0.19 per diluted share, up 40 percent year-over-year from $92.8 million or $0.14 per diluted share in fourth quarter of 2015.
The company projects first quarter of fiscal year 2017 revenue to be in the range of nearly $1.885 billion to $1.895 billion or $0.23 to $0.24 per diluted share, up 25 percent year-over-year.

What’s driving growth?

The key enterprise cloud computing solutions provider reported continued year-over-year growth in both its top and bottom lines primarily due to remarkable growth of the company’s Customer Success Platform which is driving notable growths across every cloud, every region and every industry.

Salesforce is continuing to grow its year-over-year sales and marketing expenditures with the intention to push total company sales and exceeding the key analyst’s sales estimates for the quarter despite tough global economic headwinds. The company’s quarterly results also exceeded the key financial results for its peers including, Apple Inc. and Tableau Software Inc. A majority of the expenses increase is primarily attributed to strategic acquisitions made by Salesforce for delivering impressive inorganic growth.

The enterprise cloud computing provider recently acquired a key startup on machine-learning, PredictionIO to further ramp up its advanced technology base. The technologically-superior machine learning concept is estimated to enhance Salesforce’s machine learning abilities and thus, develop intelligence all through the company’s cloud offerings.

The planned inorganic growth methodologies are for sure put pressure on Salesforce’s key finances however, it is believed to drive sustainable long-term company growth, surpassing the key competitors while, delivering attractive shareholder returns.

Smart moves

Salesforce has recently confirmed the strategic acquisition of SteelBrick for approximately $360 million and all in stock purchase. This major software segment enables businesses to organize and follow the key ordering and pricing processes, which has developed quickly, and several of the key companies have already grown on this advanced platform like Apptus, a billion-dollar startup.

The net quarterly sales for Salesforce.com has notably exceeded the key analyst’s estimates with total revenue growing 25% in the quarter and shares expanding 7% to about $66.90 in latest after-hour trading results with the company’s top line beating the key Wall Street quarterly expectations.

The enterprise cloud solutions provider’s top line is primarily benefiting from the strategic acquisitions made by the company despite unfavorable global economic conditions and weaker customer demand.

Salesforce is rapidly and consistently delivering outstanding quarterly and annual revenue growths at constant currency including, a solid of over 31 percent year-over-year expansion for both billed and unbilled total deferred revenue growing to nearly $11.4 billion.

Salesforce is among the top global most-spending companies in the world followed by Workday, Oracle and Microsoft. The key cloud provider spends approximately half of its total revenue on marketing and sales promotion activities which makes the company somewhat unprofitable.

The enterprise cloud services company needs to optimize its overall organic and inorganic growth expenditures to be able to be covered completely by the company’s well-diversified revenue streams.

According to the Bloomberg report, SaaS, IaaS and PaaS each of the three key installed workload services are projected to grow at a CAGR of 33%, 13% and 21% respectively with all these services combined are estimated to grow at a CAGR of 24% from 2013 till 2018 and mainly due to the continued growth of the company’s CRM business.

Conclusion

Overall, the investors are advised to “Hold” their position in Salesforce.com, Inc. considering strong long-term growth prospects of the company with a solid PEG ratio of 2.50, indicating impressive growth and somewhat better than the industry’s growth average of 0.95. However, the profit margin of -0.71% seems misguiding and Salesforce needs to optimize its debt-burdened balance sheet with significant total debt of $2.06 billion against weaker total cash position of $1.34 billion only, restricting the company to make future growth investments.
Published on Mar 18, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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