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Salesforce share price: how big is the opportunity after Q1 earnings beat?

Salesforce's [CRM] share price soared after the company delivered better-than-expected Q1 results, underlining its dominant position in the CRM technology sector. It's a dominance the company is looking to cement, having announced the $15.7bn acquisition of data analytics firm Tableau, earlier today. The deal comes as the firm ramps up investment to fend off mounting competition from rivals such as Microsoft and Oracle. 

In Q1, revenue, earnings per share and cash flow all beat analyst expectations. The strong results come as Salesforce's CRM software continues to be the number one choice for organisations undergoing major digital transformation projects.

The results saw the share price close almost 12% higher at the end of last week. After these stellar results is it too late to buy or are there more gains to be had?

 

How has the share price performed this year?

Salesforce’s shares are up 12% year-on-year, just behind the Technology Sector Select SDPR ETF's 13.77% gain.Salesforce share price vitals, CMC Markets, 10 June 2019

 

Yet Piper Jaffray analyst Alex Zukin notes that while the stock might be underperforming other tech shares, it offers "the most attractive risk/reward in [Piper Jaffray’s] coverage universe today".

2019 has seen this optimism play out. After sinking to $126 a share in December, the share price has shrugged off that month's tech sell-off to soar 16% this year. Shares reached a high of $166.99 in March, and currently sit just 3.5% away from this level.

However, last Monday the share price skidded over 3% after J.P. Morgan removed the stock from its Focus List after a poll of Salesforce business partners saw concerns over a possible slowdown in growth. Despite this set back, J.P. Morgan analyst Mark Murphy remained bullish on the stock, reiterating his $180 price target.

 

What happened in Saleforce’s Q1 results?

In the first quarter, revenue came in at $3.74 billion, topping analyst expectations of $3.69 billion and up 24% on the same quarter last year. Earnings per share were 49 cents, up from the 46 cents achieved in the same period a year earlier, while non-Gaap earnings were $0.93 a share, up from $0.74. Available cash increased from $4.34 in the previous quarter to $6.38 billion.

 

Market cap$119.42bn
PE ratio (TTM)105.04
EPS (TTM)1.47
Quarterly Revenue Growth (YoY)24.30%

Salesforce share price vitals, Yahoo finance, 10 June 2019

 

Service Cloud revenue jumped 20% year-on-year, pulling in $1.02 billion, while Sales Cloud also experienced 11% growth, with revenue of $1.07 billion. Both numbers show that Salesforce continues to be adept at upselling to existing customers.

Recent acquisition Mulesoft contributed $170 million to total revenues, somewhat justifying the eye-watering $6.5 billion price tag its purchase commanded in May 2018.

Marc Benioff, chairman and co-CEO of Salesforce, said in a statement:

"We have a massive opportunity in front of us and are well-positioned for long-term growth as the world's [number 1] CRM."

Salesforce have set guidance for full-year 2023 revenue between $26 billion and $28 billion. This would represent a healthy 22% year-on-year growth. Guidance for adjusted earnings per share was also upped, now forecasted between $2.88 and $2.90, a 5% uplift.

“We have a massive opportunity in front of us and are well-positioned for long-term growth as the world's [number 1] CRM.” - Marc Benioff, chairman and co-CEO of Salesforce

Shares jumped 3% in after-hours trading following the results and continued to drive higher throughout the week. The share price had grown 7% by Friday’s close.

 

Where next?

According to Benioff during the earnings call, the company grew its market share 'more than the other 15 vendors combined' in 2018.’

Benioff said both continuing digital transformation programs and increasing mobile adoption were future growth opportunities. Mobile CRM represents a big opportunity for Salesforce, with the global market expected to grow at a CAGR of over 18% between 2019 and 2025, according to Global Market Research.

On Zack’s, the stock has a “Hold” rating, but Daniel Laboe, a stock strategist who writes for the site, expects this to be revised to “Buy”. Laboe also notes that shares have a much higher P/E ratio than competitors’, which could put some investors off picking up the stock.

Of the 40 analysts following the stock, price targets were largely unchanged after the results. The average target is $182.18, which would represent a 14% upside if hit.

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