Salesforce.com Inc. (CRM) is soaring after it easily beat third-quarter earnings expectations on Tuesday evening and boosted its guidance, easing market anxiety about the possible effects of a potential economic slowdown.
Shares of the San Francisco-based cloud giant were up around 8.5% in trading before Wednesday's opening bell after Salesforce reported top- and bottom-line beats in the third quarter.
However, a bigger factor in the stock's strong rise was the decision by executives, including co-CEOs Keith Block and Marc Benioff, to raise their guidance despite concerns about a global economic deceleration ahead.
"Given the strength of this quarter's results and the incredible customer demand we are seeing, we are again raising our FY19 revenue guidance and initiating our full year fiscal 2020 revenue guidance at $16 billion at the high end of the range," Block said in a statement. "Companies across every industry, in every geography have a mandate to digitally transform their businesses and are turning to Salesforce as a strategic partner."
Benioff noted that if the company is able to meet this mark it would become the fastest enterprise software company in history to cross the threshold.
Jim Cramer's Action Alerts Plus Portfolio team, which holds Salesforce stock in its charitable trust, noted the importance of the guidance figures in their take on earnings.
"One of the knocks against the stock during its horrific ~20% decline from its October high had been that enterprise spending would slow along with the global macro fears; however, management shut down those fears with its fiscal 2020 guidance," the team wrote. "We'll look for the stock to outperform when it opens on Wednesday, with the potential for positive pin action across many other cloud and technology names."
Wall Street analysts also picked up on the company as a leader in the software space and its ability to capitalize on demand even amid a possibly more turbulent market.
"The engagement market currently suffers from technology sprawl and poor user experiences, and this is compelling organizations to modernize to next-generation systems like CRM's," Oppenheimer analyst Brian Schwartz wrote in a note on Wednesday. "While macro headwinds could hamper new software purchasing trends, we expect modernizing for customer engagement to remain a top software spending priority in 2019, and this causes us to favor CRM in large-cap technology."
Schwartz set an "Outperform" rating and a $180 price target on Salesforce ahead of what he expects to be a "relief rally" for the leader in the software market, a sector that should sidestep slowdown concerns.
To be sure, the guidance from Salesforce was not without issue. Chief among concerns highlighted by analysts was a slightly light billings guidance for the current quarter.
TheStreet's Eric Jhonsa noted that the implied billings guidance for the quarter ending next January stands at $6.4 billion compared with a $6.8 billion analyst consensus. Company executives have noted that currency headwinds account for $200 million of the forecast's fall beneath expectation.
Still, this minor factor was excused quickly by the analysts setting the bar, noting the company's propensity to beat analyst, and their own, expectations.
"While the fourth-quarter billings guide was once again below consensus, we believe this is typical conservatism on the part of CRM," Piper Jaffray analyst Alex Zukin wrote. "We remain buyers and reiterate our overweight rating [and] price target to $165."