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Salesforce (NYSE:CRM) shares rise on 22% revenue growth, raised guidance for Q3 and FY

  • Cloud software enterprise says “enormous wave of digital transformation” propelled growth during Q2
  • Posts $0.66 Non-GAAP EPS and $4bn revenue. Beats consensus
  • Raises revenue guidance to $16bn for FY, shares rally 6.9%

Salesforce (NYSE:CRM) said it was at the forefront of digital transformation on Thursday after work with ‘major brands’ including FedEx and AXA helped the cloud software company to deliver a 22% increase in revenue ($4bn) for the three month period ending 31stJuly.

Salesforce shares had slipped 5% in the run-up to the corporate report on investor concerns about recent costly acquisitions, general currency and economic headwinds. But those fears were misplaced as the San Francisco-based company posted earnings and revenue beats for Q2, and raised its guidance for the year.

Co-CEO Keith Block spoke of growth being “propelled” during the earnings call, and its strong performance saw Non-GAAP earnings per share rise to $0.66 – 19 cents higher than the Wall Street consensus. Sales of $4bn also jumped from Q2 2018 and beat estimates by $40m.

Salesforce is now confident of posting revenue of $4.44–$4.45bn and EPS of $0.65–$0.66 for the third quarter versus the $4.25bn and $0.61 analyst estimates. There was also a raised outlook for FY 2020 with revenue now expected to climb around 27% to as much as $16.9bn and EPS to top out at $2.84. Both of those figures were again ahead of the consensus.

Investors had expected the company’s $15.7bn acquisition of data platform Tableau, and $1.3bn purchase of workforce hub ClickSoftware to be a drag on their bottom line, but co-CEO Marc Benioff said the deals are a core part of its strategy and tie directly into the value of its platform.

He noted: “We have tremendous innovation happening at Salesforce and that's been so important for us over the last 21 years. But we're also in awe of a lot of other innovation that's happening outside of our company and we've been fortunate to have a big enough view of innovation that it's motivated us to be one of the most innovative companies in the world.”

Nucleus Research analyst, Daniel Elman said on Friday that Salesforce will continue to target SME acquisitions to support organic growth. Salesforce said on Thursday that bringing Tableau into the fold will help to contribute up to $600m to the top line.

Investors were impressed with the breadth and scale of Salesforce’s strengths during the latest period and its upside guidance for Q3 and the full fiscal year. The SaaS enterprise has only made gains of 2% during the last 12 months but was trading 6.9% higher late on Thursday into Friday. Shares are now valued at $158.57.

Analysts remain incredibly bullish on Salesforce, and the latest impressive showing is unlikely to prompt any research firms or banks to change their positions. The company currently has 37 Buy ratings and not a single Hold or Sell rating. The average price target is $182.87.