The Street Remains Bullish On Salesforce Despite Concerning Guidance

Salesforce.com, inc. CRM reported fourth-quarter results that came in better than expected, but management's outlook for the first quarter missed on both the revenue and EPS lines.

Here is a summary of how some of the Street's top analysts reacted to the report.

The Analysts

• Bank of America's Kash Rangan maintains a Buy rating on Salesforce with an unchanged $200 price target.
• Wells Fargo's Philip Winslow maintains at Outperform, price target lifted from $175 to $185.
• BMO Capital Markets' Keith Bachman maintains at Outperform, price target lifted from $175 to $185.
• KeyBanc Capital Markets' Brent Bracelin maintains at Overweight, unchanged $180 price target.
• Wedbush's Steve Koenig maintains at Outperform, price target lifted from $174 to $192.
• Raymond James' Brian Peterson maintains at Strong Buy, price target lifted from $165 to $200.
• Oppenheimer's Brian Schwartz maintains at Outperform, unchanged $180 price target.

Salesforce's stock traded around $156.90 per share at time of publication Tuesday afternoon.

Bank Of America: Strong Q4 Across The Board

Salesforce's weakness in reaction to Monday's release can be attributed to two metric misses, Rangan said in a research report.

Billings coming in at 22 percent, which is short of bullish expectations of 24-26 percent. Fiscal 2020 revenue guidance was just $50-$100 million, which may be disappointing after a strong fourth quarter.

Rangan said investors should focus instead on Salesforce's cRPO (current remaining performance obligation) as a lead indicator of future performance. During the fourth quarter, cRPO came in at 24 percent and management guided to a similar 24 percent in a seasonally slow first quarter. This should give investors sufficient confidence in the company's outlook over the next year.

Related Link: The Street's Reaction To Salesforce's Big Q3 Beat

Wells Fargo: 'Top Of The Food Chain'

Salesforce's earnings reaffirms the company's status as being "on top of the food chain" for three key reasons, Winslow said in a research report. These include:

1. An ability to continue leveraging organic and inorganic investments across segments like e-commerce, CPQ, data management platform and integration.
2. The ability to cross-sell multiple cloud services to its customer base while simultaneously attracting new customers.
3. A steady operating margin expansion.

BMO: Reasonable Valuation

Salesforce's management presented a new longer-term revenue guidance of $26 to $28 billion in fiscal 2023, which marks another year of growth compared to prior guidance of $21 to $23 billion in fiscal 2022, Bachman said in a research report. The new guidance implies a 19-percent compounded annual growth rate at the midpoint over the next four years. This also marks an improvement from the 2022 guidance, which implies an 18-percent CAGR revenue growth at the midpoint.

Over the coming few years, Salesforce should be able to sustain an approximate 20 percent revenue growth that makes the stock look "reasonable" at current levels relative to its growth prospects.

KeyBanc: Addressing The $142 Billion Market

Management's fiscal 2023 revenue guidance implies Salesforce's organic revenue will double over the next four years, Bracelin said in a research report. The outlook also implies Salesforce will capture a 19 percent blended share of the $142 billion total addressable market of cloud services.

The company has a strong track record of capturing new business as its market share within CRM expanded from 10.5 percent in 2011 to 20.3 percent in the first half of 2018.

Wedbush: Q1 Guide Likely Conservative

At first glance, Salesforece's first-quarter EPS and revenue guide fell short of expectations but factoring in MuleSoft licensing seasonality (licenses represent 60 percent of subscription revenue) it looks "about right," Koenig said in a research report. In fact, management's guidance may be another "typical conservatism" and there is the potential for $25 million or more upside.

Raymond James: MuleSoft Is Underappreciated

Salesforce's MuleSoft is likely underappreciated by investors as the business outperformed expectations in the fiscal year, Peterson said in a research report. Revenue for the four quarters totaled $431 million, which was 37 percent ahead of management's initial guidance and signals Salesforce's "success in driving digital transformation across larger enterprises."

Oppenheimer: Low Bar Set

Salesforce's first-quarter guidance could be seen as a disappointment since it implies "only modest and the lowest" sequential growth dating back to July 2009, Schwartz said in a research report. On the other hand, the guidance does set up a "low bar" for Salesforce to measure up to at a time when it continues to executive "very well" with expectations to generate steady share gains, durable growth and improving cash flow metrics over time.

Photo courtesy of Salesforce.