Salesforce.com (CRM) is showing itself to be a stalwart among technology stocks, regardless of the headwinds that hurt sentiment heading into the call.
Shares of the San Francisco-based cloud leader leapt over 8% in pre-market trading after a report of $4 billion in revenue for its fiscal second quarter, a 23% jump year-over-year on a constant currency basis, which beat the consensus and adjusted earnings per share of 66 cents, which roared past the consensus expectation of 47 cents.
The results from the cloud king are typically satisfactory, extending multiple years of consistent earnings beats on the top and bottom lines.
"We have an incredible opportunity ahead as more and more companies invest in their digital transformation. Across every industry, every geography, they are turning to Salesforce as their trust advisor into our Customer 360 platform as the foundation and catalyst of their growth," co-CEO Keith Block told analysts on Thursday evening. "We continue to see great results across our clouds, our industry solution and our regions. The hundreds of customers that Marc [Benioff] and I meet with every quarter are looking for a vision and they're looking for strategy that will help them propel their growth and to get closer to their customers."
With that trend in mind, management raised revenue guidance to a range of $4.44 billion to $4.45 billion for its fiscal third quarter, well ahead of expectations of $4.181 billion.
"Following an outstanding quarter, we're raising our FY20 revenue guidance to $16.9 billion at the high-end of the range," said Marc Benioff, Chairman and co-CEO of Salesforce. "With our Customer 360 vision, Einstein AI and the millions of Trailblazers innovating on our platform, Salesforce has never been better positioned for the future."
The jump in shares and rosy outlook to end the week on those factors is particularly encouraging after months of treading water as macro factors and a perceived sector slowdown hampered share growth.
"Between an unloved $17bn, all stock acquisition of Tableau, a highly publicized service outage, worries about Sales Cloud facing tougher renewals/heavy market saturation and of course emerging and expanding concerns regarding a weakening global macro, there were no shortage of things to worry about in Q2," Stifel analyst Tom Roderick acknowledged. "And yet, with a sizable revenue, EPS and CRPO beat, Salesforce once again finds itself sitting atop the throne with its head held high and its crown intact."
He noted that despite the aggressive acquisition strategy, the cash flow position of the company remains extremely healthy, vindicating the strategy.
Operating cash flow forecasts for the company are still slated to grow 21% to 22% for the full year, even as it adds assets like Tableau, Mulesoft, Demandware, and more at a rapid clip.
"We see a long runway for these early-stage lines of business and room for the broader portfolio of products to play a key role in large-scale enterprise transformations into the coming year," Roderick commented. "Considering the company's position of leadership in the SaaS-based CRM ecosystem, its strong free cash flow generation compared to the group, and a consistent round of product releases coupled with platform enhancements, we believe that CRM sets up well into FY20 and beyond."
On the back of the bullish results, he raised his price target from $185 to $195 per share as the momentum in the stock appears strongly sustainable.
On the company's guidance, after years of besting estimates, there remains good reason to stick with Salesforce even as fears foment on the tech sector more broadly.
"As we look ahead, we don't see much evidence, if any, that suggests management won't make good on their guidance of organically doubling revenue in the next four years -- as cavalier as that sounds," Jim Cramer's Action Alerts PLUS team said. "While the bears believe an economic slowdown could disrupt this, we always remind ourselves of how the last thing enterprises will cut back on during uncertain times is their customer relationship management spending." The team added that the stock still presents opportunity given its rough recent run, leaving it below its historically high multiple.
"Economic slowdown or not, Salesforce.com's customers and potential customers have to invest in these capabilities or else risk falling by the wayside," Cramer's team concluded. "Putting it all together, we have and will continue to view this Cloud King's outlook as durable and not as susceptible to an economic slowdown as many think."