Salesforce.com (CRM) is reminding traders on Wednesday that all cloud-related companies are not created equal.
This cloud earnings season has been about the bigger established names. Salesforce blew past estimates as did another favorite, Veeva Systems (VEEV) . Small, specialty names are struggling, though.
I discussed Zuora (ZUO) on Tuesday and now we can add Pivotal Software (PVTL) to the list as the stock is down around 40% Wednesday. Both banged-up small names pointed to sales execution and the complex technology landscape as reasons for the shortfall. Bigger and broader, like Salesforce, appear to be better right now.
Companies are looking to lower costs and move into the cloud. The migration remains predominantly high level, so it is reasonable the smaller, specialty focused names might struggle from time to time. Unfortunately, Pivotal's issues appear to be year-long; whereas, Zuora's likely three to six months. Zuora was a speculative long trade Tuesday.
As for Salesforce, the fiscal first quarter was nothing short of impressive. The Action Alerts PLUS holding reported EPS of $0.93, trouncing estimates of $0.61, on revenue of $3.74 billion.
While second-quarter EPS guidance of $0.46-$0.47 is well short of the $0.66 consensus, the full-year number of $2.88-$2.90 still lands ahead of the current $2.69 estimate. So, first quarter beat by $0.32, second quarter will be short by $0.19, and the full year ahead by $0.30. That means Q3/Q4 should come in $0.17 ahead of expectations.
Revenue guidance remains in line, which indicates CRM's margins are significantly stronger than expected. After years of sacrificing the bottom line in exchange for the top-line growth, investors are seeing the benefits.
If the stock holds this 4% move Wednesday, it will be the second highest in two years. CRM has become relatively tame in terms of post-earnings and follow-thru action over the past eight quarterly reports. It's important to note the stock did take a beating Monday. The strong move Wednesday simply gets the stock back into the same trading range we've seen over the past month.
The weekly chart is a tale of two cities. The 2019 picture is actually bearish. The megaphone pattern (higher highs paired with lower lows) is bearish, and one of the stronger bearish patterns that exists. I hate to see it if I'm a bull.
The move Tuesday had me concerned the breakdown would trigger this week, but the bounce of the past two days makes it more likely the stock will remain inside this pattern fighting the 10-week and 21-week simple moving averages for resistance.
Interestingly enough, the megaphone could be an unorthodox handle to a large cup-and-handle pattern dating back several years. If this is the case, then a break over $165 sets us up for $200 by summer of 2020.
I'd tend to lean buyer above $160 and get more aggressive over $165 while a close below $150 makes this an avoid for me.
I like the report and the path of Salesforce. While I might prefer Veeva longer term and Zuora for a trade, CRM should be a name considered in the cloud.
