Wow. Impressive. The Salesforce (CRM) numbers or co-CEO Marc Benioff? Both. Most readers know that I have long written positively on the firms most associated with transitioning the data center from on site to the cloud. This would in fact be a group that I have invested in broadly. Regular readers likely also know that while I stuck with several other favorite, notably Adobe (ADBE) , and ServiceNow (NOW) , that after the shares of Salesforce pivoted around my $154 panic point for weeks, I was out of ammo. Flat the name. Seemed wise as the shares headed south, seemingly for good. Do I feel regret protecting myself? Of course not. Do I need to get back into this name? Some of you are probably thinking on this right now. Let's figure it out. Together.
For it's fiscal first quarter, Salesforce reported EPS of $0.93, or $0.66 excluding a successful investment gain made in the recently public Zoom Video (ZM) . This was good enough for a nickel beat. Revenue growth stayed on track, printing at $3.74 billion, another beat, on a 24.3% yearly increase. Even better than those beats are the guidance provided on Tuesday night. For the current quarter, the firm guides revenue to a tight range of $3.94 billion to $3.95 billion, providing EPS of $0.46 to $0.47. For the full year, guidance for profitability was particularly encouraging, spanning a range from $2.88 to $2.90 on revenue of $16.1 billion to 16.25 billion. Industry consensus had been at $2.69 on revs of $16.1 billion.
The overview remains impressive. Gross Profit hit the tape at $2.82 billion, up from $2.24 billion. Net Income similarly popped, from $392 million to $344 million. Operating Cash Flow increased by 34% to $1.97 billion. 34%!!
I would love to also point out just how balanced the firm is. By business line, the Sales Cloud provided $1.1 billion(+11) in revenue, the Services Cloud $1 billion (+20%), Salesforce Platform combined with "Other" $800 million (+46%), and the Marketing Cloud $600 million (+33%). It's important to note that for business operations to remain relevant, there will eventually have to be integration toward at least a hybrid version of the cloud for sales, subscriptions, marketing and even more key... for storage. U.S. businesses are way ahead on this, but the whole planet is going to have to get there. That's my opinion. That's why, upon straight fundamental analysis, nearly all cloud related software names seem overvalued. You are, as you always have, paying more from growth than you would for value.
Now, I am going to steal a bit from Jim Cramer's column on Salesforce this morning, because I think it important to understand, and there may be one or two of you who missed it. On the call, Benioff cites a third source that states that only 20% of all enterprise has now been digitized. Think about that. Still with Cramer's note... that wonderful growth in Cash Flow has been driven quite globally. 25% here in the New World, 27% from the Asia/Pacific region, and 32% from Europe, the Middle East, and Africa. You know where the firm has next to no revenue exposure? China. Just like nearly every other cloud name that I have given you. So, robust growth everywhere, with the exception of the one place where it can really get hurt by the ups and downs of the trade war. Imagine if that conflict settles well. Even more opportunity. Why am I flat this name?
If this chart looks familiar, that's because I have used it recently. At the Tuesday low, the selloff in this name fell short of a 50% retracement of the November through March move higher. One sees a Flat base that ran for months topping out in the same spot three times at $167. The area where that base had been supported (my former panic point has been retaken overnight). For a long term investor, that $167 spot remains the pivot, but that may be just my enthusiasm taking hold this morning. For a trader, hitting resistance at that price for a fourth time would be just fine..
How To Buy CRM At The Bottom, Even If You Didn't (minimal lots)
- Purchase 100 shares of CRM at or close to the last sale of $156.41 (I may wait to see if there is some profit taking later to actually pull the trigger.)
- Sell one CRM September $165 call (value: $7.53)
- Sell one CRM September $145 put (value: $6.28)
Notes: Selling these two options that expire after Salesforce reports their second quarter will reduce net basis to $142.60 (or the recent bottom), by virtue of the $13.81 gross credit. Rock on. Worst case.. the trader would have to buy 100 additional shares at $145 in September with the shares trading lower.. Best case? Selling the 100 shares at $165 in September for a profit of 15.7%.