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What Could be Next for Salesforce?

Posted on Thursday, Dec 20th 2018 (NYSE: CRM) continues to stun the market with a performance that outpaces all expectations. The market was so pleased with Salesforce’s recently reported results that the stock reported the biggest climb in the last two years. Post the result announcement, its stock climbed 9.5%, the most intraday growth recorded in the stock since 2016.

Salesforce’s Financials

Salesforce’s third quarter revenues grew an impressive 26% over the year to $3.39 billion, above analyst projection of $3.37 billion. Adjusted EPS of $0.61 was significantly ahead of the market’s expected earnings of $0.59 per share and recorded a remarkable 56% growth over the previous year’s $0.39 per share.

By segment, revenues at Subscription and Support accounted for 93% of the revenues and grew 16% over the year to $3.17 billion. Professional Services and Other revenues brought in the remaining 7% and grew 15% over the year to $224 million.

Within the segment, Sales Cloud revenues grew 11% to $1.02 billion. Revenues from Service Cloud, which is among its fastest growing businesses, grew 24% to $917 million. Marketing & Commerce Cloud recorded a 37% growth to $489 million. Salesforce’s Platform and other revenues grew 51% to $742 million. Mulesoft helped bring in $105 million in revenues for Salesforce.

Among other metrics, Salesforce’s unearned revenue, business that has been booked, but not delivered, grew 25% to $5.4 billion. Remaining performance obligation, which represents future revenue that’s under contract but not yet recognized, grew 34% to $21.2 billion.

For the current quarter, Salesforce expects to deliver $3.551-$3.561 billion in revenues with Non-GAAP earnings of $0.54-$0.55. The Street was looking for revenues of $3.53 billion and an EPS of $0.57.

Salesforce now expects to end the current year with revenues of $13.23-$13.24 billion, compared with an earlier forecast of $13.125-$13.175 billion. It is projecting fiscal 2019 earnings at $2.60-$2.61. The company issued revenue guidance for fiscal 2020 at $15.9-$16 billion, compared with the market’s forecast of $15.83 billion. It maintained its forecast of reaching revenues of $21-$23 billion by the year 2022.

Salesforce Platform Expansion

Similar to the agreements that Salesforce has with other cloud services providers, it recently entered into a tie-up with Apple. As part of the partnership, Salesforce and Apple will work together to build new mobile apps for business that will integrate Apple’s iOS capabilities with Salesforce’s CRM expertise. The redesigned Salesforce app for Apple will come with exclusive new features on iOS and will redesign the Salesforce Mobile App to give customers rich experiences exclusively on iOS. It will feature Siri Shortcuts, Face ID, Business Chat, and will also introduce the first ever Trailhead Mobile App. Additionally, Apple and Salesforce are developing the first Salesforce Mobile SDK that will be optimized for Swift, Apple’s intuitive modern programming language. The native SDK will enable businesses and developers to build and deploy apps for iPhone and iPad on the Salesforce Lightning Platform.

Earlier this month, Salesforce released IoT Insights to Field Service Lightning. The service will allow customers to see IoT signals directly within Salesforce’s Service Cloud and Field Service Lightning mobile app consoles, alongside customer relationship management data. They will get access to critical alerts, like imminent device failures and historical service information, that will help technicians and mobile workers to learn which devices require servicing or fixing before they arrive at the job site. Additionally, customers will be able to create rules and guided processes to trigger case creation and work orders automatically, as IoT signals come in. The application will help service technicians deliver more efficient customer service.

Recently, Salesforce also released Salesforce Einstein Bot where it integrates its AI platform Einstein with an intuitive, bot-building utility. Einstein Bot can tap into Salesforce data through a configured interface, and as and when needed, hand over the customer interaction to support personnel in Salesforce Service Cloud.

Salesforce clearly knows how to deliver growth as it continues to impress with its IoT, AI, and Cloud offerings. In a recent State of Sales report, Salesforce found that customer satisfaction was expected to become the number one sales metric in the next three years. It expects customer engagement to increase on emerging channels including chat and video. Its investments in AI and IoT are helping it deliver on this metric. I would like to know what other services should Salesforce be adding to deliver on the customer satisfaction metric? What other acquisitions could work in its favor? Some believe that Salesforce would benefit from the addition of Twilio, DocuSign, and even Dropbox. What do you think about that?

Cloud communication platform Twilio is currently trading at $85.70 with a market capitalization of $8.5 billion. It last reported quarterly revenues of $148 million with a non GAAP net loss of $0.03 per share. Similarly, the document management capabilities of both Docusign and Dropbox would fit well into Salesforce’s services. Docusign is currently trading at $41.11 with a market capitalization of $6.8 billion. It last reported quarterly revenues of $167 million with an adjusted net income of $0.03 per share. Dropbox, which went public earlier this year, is trading at $21.56 with a market capitalization of $8.8 billion. It recently reported revenues of $360.3 million for the quarter with earnings of $0.11 per share.

Its stock is trading at $131.24 with a market capitalization of $100.5 billion. It had touched a record high of $161.15 in September this year. It was trading at 52-week low levels of $101.32 nearly a year ago.

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