Salesforce.com's (CRM) Q4 Guidance Seen as Conservative at Deutsche Bank
Deutsche Bank maintained a Buy rating on salesforce.com (NYSE: CRM) with a price target of $90. Analyst Karl Keirstead noted the company's solid Q3 print and said Q4 guidance looks conservative.
"Salesforce posted a modest 3QF16 beat that in our view should be “good enough” for the stock. The quarter was highlighted by DR growth of 30% in c/c (the 6th consecutive quarter in the28%-32% growth range and above guidance), billings growth of 21% (23%-24% in c/c, above our 20% estimate) and non-GAAP OMs of 13.3% (well above our 12.1% estimate). The 4QF16 DR growth guidance of 23%-24% was below our estimate and we didn’t see an upward OCF growth guidance revision as we hoped for, but in our view the guidance looks conservative. We reaffirm our BUY rating given solid execution and leadership positioning within a large addressable market and our $90 PT," said Keirstead.
Discussing guidance in more detail, the analyst said. "While the 3QF16 numbers were solid, the 4QF16 DR growth guidance of 23%- 24% was in our view a bit light (it implies 4QF16 DR of $4.12b, we were modeling $4.22b). The high end of the 4QF16 revs and DR guidance implies billings growth of ~21%, in-line with the last several quarters and a lower sequential DR growth rate than in 4QF15 despite more large renewal activity skewing to the 4th quarter and invoice durations continuing to rise. Salesforce cited a tough sequential DR comparison but absent any concrete signs of slowing momentum, we’re assuming that the 4QF16 DR guidance is conservative and we’re modeling 24% billings growth in 4QF16, an acceleration from prior quarters. The OCF guidance implies a 5% decline in 4QF16 OCF, which we also view as conservative."
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Shares of salesforce.com closed at $77.35 yesterday.