The shares of Salesforce.com (CRM) dropped after the company announced results last night, as guidance came in weaker as I had expected and stated in my preview. CRM shares were priced for perfection, trading at slightly over 60x next year's earnings estimates of $1.32 per share.
The company reported earnings of $0.24 per share, excluding charges and one-time gains on revenues of $2.04 billion for the quarter ended in July. The analysts were expecting earnings of $0.22 per share on revenues of an even $2 billion. So the company posted a beat on earnings by a couple of pennies, as I had expected.
However, for the current quarter, Salesforce guided revenues to a range of $2.11 billion and $2.12 billion and earnings between $0.21 and $0.22 per share. Wall Street had been expecting earnings of $0.24 per share on revenues of $2.13 billion. So a guide-down in the current quarter, just as I had expected as well.
For the year ending in January 2017, CRM slightly raised its guidance to revenues between $8.275 billion and $8.325 billion or $8.3 billion at the mid-point, and said earnings would come in between $0.93 per share and $0.95 per share or $0.94 per share, also at the mid-point. The sell-side analysts were expecting earnings of $0.95 and revenues of $8.31 billion. So a small take-down on both counts if one would like to split hairs.
Most important, Salesforce saw lower bookings in the July quarter compared to what the Street was expecting and that is the main reason why the shares got hit in post market trading. CRM said that bookings in the quarter came in at $1.83 billion vs. the $1.95 billion that was expected going into the results last night.
Salesforce's App Cloud business continued its scorching growth rate, checking in at $353 million, up 43% compared to the same quarter a year ago while its Sales Cloud business grew 13% to $755 million.
Shares of CRM were indicated lower by about 9% early in the morning, although later they regained some ground. I expect other SaaS (Software as a Service) cloud players like Workday (WDAY) and Oracle (ORCL) to also get hit as a result of the weakness in Salesforce's guidance.
A few more points lower than the $74 per share level as indicated in early premarket trade and I will be a buyer, although a slow and steady one.
Don't forget that the shares of CRM should also start recovering going into the big October Dreamforce event.
Congrats to those of you who had a dark side trade in Salesforce going into the earnings announcement last night.
PS: Tonight after the close we will have Broadcom (BRCM) and Ambarella (AMBA) reporting their own earnings. Both these companies have been stellar performers the last couple of months, and the results should be very interesting to say the least.
PPS: Citi has just lowered its price target on Salesforce to $89 per share, but maintained its Buy rating.