BUY Target $ 180

Image representing Salesforce as depicted in C...
Image via CrunchBase


Nov. 21

CRM : NYSE : US$145.90
Target: US$180.00

11-year-old offers Internet-based subscriptions to software applications and infrastructure to over 80,000 customers worldwide. The firm’s core products include Sales Cloud (sales automation), Service Cloud (customer support and call center applications), (a development platform) and Chatter (a person-to-person collaboration tool for business).

Investment thesis
We expect CRM shares to gradually advance toward our $180 price target over the next few months. We saw nothing in this quarter’s commentary
that altered our bullish view on Salesforce’s future fundamentals and the company’s ability to remain a best-in-class, disruptive large business Cloud vendor that is headed to $10 billion in revenues within 6 years by our reckoning (22% CAGR).
 Another solid quarter. CRM reported FQ3 revenues and non-GAAP EPS of $788M (+35% y-o-y) and $0.33, which were $13.4M and a penny
ahead of our estimates. Calculated billings of $743M topped our estimate by $11M and grew approximately 31% after normalizing for the reemphasis on annual billing terms and the sequential benefit from FX. OCF of $106M was slightly below consensus but included a roughly
$32M negative impact from 3 non-recurring items (a payables catchup, settlement of a small lawsuit, and the Buddy Media transaction).
 Outlook:

FQ4 and preliminary F2014 guidance in-line with Street. CRM provided January quarter revenue and non-GAAP EPS ranges that
bracketed our estimates. Our estimate for Q4 calculated billings growth of 20% is below trend, as expected, as the firm laps a large multi-year
invoice as well as the impact from the refocus on annual billing terms in the year-ago period. CRM continues to expect OCF growth of at least
20% in F2013. The firm’s preliminary F2014 revenue guidance implies 26% y-o-y growth, in line with consensus and slightly below our highend
estimate. We have introduced F2015 revenue and FCF/share estimates of $4.76B (+24%) and $5.06.

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