The latest cloud computing stocks to report gave us strong number and show nothing but blue skies head; indeed, Salesforce (CRM) blew our forecasts away, notes Todd Shaver, growth stock specialist and editor of BullMarket.
All we wanted was $395 million in profit (the equivalent of $0.50 per share) on $3.3 billion in revenue. The online customer relations giant gave us an extra $100 million on the top line (for a total of $3.4 billion) and a robust $477 million in profit, which translates into $0.61 per share.
Those are great numbers and Wall Street was eager for a little cheer, which magnifies the impact. Salesforce is expanding its revenue base at a healthy 25% rate and profit growth is now closer to 60% than 50%. We might cheer that kind of performance in one of our small, aggressive stocks, but when you're dealing with a $100 billion behemoth it's especially impressive.
Things get better from here. CEO Marc Benioff says the company "has never been stronger or in a better position." We agree. Salesforce has now locked up $21 billion in future revenue that customers are contractually obligated to pay over the next two years, guaranteeing that there's a firm platform for new customer wins.
In effect, the company could simply sit on its existing relationships through the end of 2020 and its cash flow won't shrink by any appreciable amount.
That $21 billion backlog has jumped 34% since last year, by the way. While current growth is impressive, even more revenue is being loaded into the future. Management has built a formidable cash machine.
Guidance is for 25% revenue growth in the fourth quarter shifting down just a bit to around 20% next year. Earnings might take a slight hit in the short term but the longer-term outlook is still better than what we anticipated.
Adjust for an anticipated buyback of another 25 million shares and Salesforce is on track to double earnings in 2018 compared to last year. That's huge.
We recommended this stock on a deep dip right when the market started getting rough. Now it looks like our slight paper loss will recover as early as this morning. After that, it's time to make money. The correction is over for Salesforce.com. We expect it to hit at least $170, our price target, in 2019.
