Wall Street on Wednesday offered glowing analysis of Salesforce's third-quarter earnings report, which included a hefty profit beat and 26 percent revenue growth from a year earlier.
The business-software maker also issued an upbeat outlook for sales in the fourth quarter and forecast growth in 2019. Management expects fourth-quarter sales growth of 25 percent on a year-over-year basis and for revenue to swell to $16 billion in the upcoming fiscal year.
Many analysts, including Morgan Stanley's Keith Weiss, reiterated bullish calls following Tuesday's robust results and praised Salesforce co-CEOs Marc Benioff and Keith Block for reliable outperformance.
"Salesforce.com is exactly the type of underpriced earnings and free cash flow story that we want to own in today's volatile environment, where we see strong future growth potential and improving profitability combined with large cap stock liquidity," Weiss wrote.
"Salesforce.com is one of the best secular stories in software in our view, and has more direct participation in secular demand for mobile, social and cloud than any name we follow," Weiss added.
The company's shares rallied 4 percent Wednesday after its financial results and the flood of positive Wall Street notes, adding to a 24 percent climb so far this year. It closed at $127.54 on Tuesday.
Here is what Wall Street is saying about Salesforce's earnings.
Morgan Stanley (Overweight)
"Salesforce.com delivered very strong third-quarter results as a broad product portfolio in a $200 billion total addressable market provides ample runway for sustainable 20 percent growth. Initial guide for fourth-quarter billings and fiscal 2020 revenue growth looks conservative in light of stable 27 percent current RPO growth year to date. We remain overweight with a $178 price target."
"Salesforce.com is exactly the type of underpriced earnings and free cash flow story that we want to own in today's volatile environment, where we see strong future growth potential and improving profitability combined with large cap stock liquidity."
Citi (Buy)
"With some controversy into the quarter around the outlook for next year, we see the report vindicating that secular trends remain in place and also helping to drive some confidence in this for the growth group. Medium/long term, we continue to view Salesforce as compounding revenue with balance of profitability along the trend of business across nearly all industries looking to lead customer interactions with digital channels. Salesforce remains the best play on this powerful trend in our coverage universe. Our price target moves to $183 as we roll discount period forward."
Oppenheimer (Outperform)
"Salesforce.com's business remained very solid in the third quarter with the results and outlook better than investors feared. On balance, the total backlog metric looks uninspiring, mostly from negative FX volatility. Nevertheless, the metric provides long-term investors with visibility for strong profitable growth and continues outpacing revenue and billings growth, supporting our Salesforce estimates. Bottom Line: We see salesforce.com's F3Q results and improved outlook supporting our bull thesis on the customer engagement opportunity."
Baird (Outperform)
"Salesforce.com reported a beat-and-raise in 3Q19 and provided initial fiscal 2020 revenue guidance of 20 percent to 21 percent year over year. This forward guidance along with CEO Mark Benioff's comments around strong macro in America's and APAC (he clarified only EMEA CEO's are hinting more conservative) should remove portions of bear case around uncertain 2019. We have conviction at current levels and reiterate Salesforce as top large-cap pick."
William Blair (Outperform)
"Salesforce reported strong third-quarter results after the markets closed on Tuesday, November 27. The commentary on the conference call was once again optimistic in regard to the macro spending environment and the company's position as a digital transformation partner to its customers. The highlight of the results was the strong beat in billings— the company reported 27% billings growth while the Street was expecting 19 percent growth. Billings was driven by strength across all clouds as both renewals and new business led to outperformance in the quarter."
Jefferies (Buy)
"Salesforce exceeded fiscal third-quarter expectations across the board (except free cash flow). New Sub ACV grew 20 percent year over year on an organic, constant currency basis. The fiscal third quarter supports the notion that Salesforce is a broad organization that is attacking several opportunities, and softness in some areas in any given period can be offset by strength in others to yield strong aggregate results. Fourth-quarter billings guide implies a meaningful moderation for New Sub ACV, but we view this as characteristically conservative."
Evercore ISI (Outperform)
"Salesforce delivers strong F3Q results across the board; tougher F/X backdrop weighs on F4Q unearned guide, but FY20 revenue guide of +20-21% should quell any concerns about the demand backdrop. Please click below to see our full thoughts on the quarter. Bottom line: Salesforce delivered strong 3Q results, as total billings came in at 25.9% y/y (+20.3% in organically) handily beating Street expectations of 19% driven by a combination of a stronger bookings quarter and larger renewals. Management reiterated a robust spending environment while commentary would lead us to believe the current macro environment is having little to no impact on the business."
UBS (Buy)
"CRM's EV/NTM Sales multiple compressed 23% since mid-Sept. as investors worried about high expectations in the face of intensifying FX headwinds. However, with Q3 broadly topping expectations, FY20 revenue guidance ahead of Street estimates, and Q4 deferred guidance better-than-feared, we expect the stock to see some relief today. We see CRM as relatively defensive in a rocky tech tape as the Digital Transformation opportunity builds momentum, driving top line growth, while shares look attractively valued at 32x EV/NTM FCF estimates, 11% below the stock's five-year average and within 20% of five-year lows."
Goldman Sachs (Buy)
"Salesforce.com posted F3Q19 results after the close, delivering a solid beat on billings, growing 27 percent year over year compared to consensus at 19 percent. As we expected and outlined in our preview, management guided F4Q19 deferred revenue and implied billings growth below the Street, although in line with where we expected them to guide. As is customary, we see this guidance as being very conservative despite a larger FX headwind to unearned revenue in F4Q19, and we would expect them to post material outperformance."