KeyBanc Finds A Surprise In Salesforce's Q3

Salesforce.com, inc. CRM reported on Tuesday a top- and bottom-line beat in the third quarter but guided its fourth quarter EPS below Wall Street's expectations.

The Analyst

KeyBanc Capital Markets' Brent Bracelin maintains an Overweight rating on Salesforce's stock with a price target raised from $108 to $124.

The Thesis

Salesforce reported another "solid" quarter highlighted by 25 percent revenue growth and 59 percent EPS growth, Bracelin said in a research report. (See Bracelin's track record here.) 

But the biggest takeaway from the quarter is a surprise acceleration in billed and unbilled deferred revenue, which rose 31 percent from a year ago to $15.9 billion, the analyst said. The growth rate is the strongest seen in three years and marks the second consecutive quarter of accelerating growth, he said.

Some of the other notable points Bracelin identified in Salesforce's Q3 were:

Sales cloud growth of 17 percent in the quarter versus 12 percent in the full fiscal year. 

Acceleration in service cloud and app cloud growth. 

The operating margin moved higher by 140 basis points from the past quarter to 16.3 percent.

Salesforce's growth across metrics could be seen as evidence the company is  "capitalizing on its potential to become the modern digital platform for large B2B and B2C enterprises," the analyst said. This should also leave investors with a high degree of confidence that Salesforce could double its revenue to $20 billion within five years.

Price Action

Shares of Salesforce hit a new all-time high of $109.19 but were trading lower by around 1 percent early Wednesday morning.

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Photo courtesy of Salesforce.