A disappointing forecast for Salesforce, despite good earnings

Forex Distribution

Back in November, at Dreamforce, Salesforce revealed they were expecting to double in size by 2024, with their revenue reaching a number between $34 and $35 billion. This would come as a result of last year’s big acquisitions, in the company’s attempt to pursue growth in alternative software markets. 

Still, while their stock has gained in 2019, it also underperformed the S&P 500, being surpassed by important cloud companies like Shopify, ServiceNow or Veeva. 

This Tuesday, Salesforce’s shares bounced around during extended trading, following the positive reports, with the stock rising around 1%. Still, it wasn’t long-term good news, as it immediately fell by 2%. 

By the end of the full fiscal year, the company is looking forward to revenue of around $17 billion, which would be a great result, considering the $16.9 billion average analysts predicted. 

The future looks bright for the management

Mark Hawkins, Salesforce CFO, is convinced that they will be able to double in size by 2024, reaching a revenue between $34 and $35 billion. 

Currently, the company keeps growing due to its homegrown Sales Cloud business, which provides CRM tools to salespeople. So far, the revenue generated by this product grew by 15%, to $1.17 billion. However, the core business is gradually maturing, so Salesforce is looking forward to some new acquisitions, in their attempt to reach new markets. 

In August, they have purchased data analytics company Tableau, its biggest deal so far, worth $15.3 billion. This happened one year after another acquisition, which involved MuleSoft, a company producing software able to connect data stored in different silos. Finally, this year also saw Salesforce buying ClickSoftware, a field service management software provider, for $1.35 million. 

Marc Benioff, Salesforce co-founder and co-CEO claims that the company is now mixing organic and inorganic growth, like “a dance”. 

“It’s the pacing. You have to acquire, then you have to ingest it. It takes a while to bring these things in, to integrate them, to get the momentum, to get the velocity,” Benioff said. 

The co-founder added that the MuleSoft deal raised a lot of question marks but people are finally getting it. Also, the integration process with Tableau just began!

“We’re just kind of getting who are you, what’s your name because I’m Marc, nice to meet you,” he said. 

The company grey, but…there’s a “but”

So far in 2019, Salesforce registered an 18% growth. But again, they are still underperforming, compared to otherwise smaller cloud companies.

At this Tuesday’s close, Salesforce’s shares have risen 9% since the latest earnings reports, compared with a gain of 5.8% for the S&P 500 index. On Nasdaq Composite Index, they had a 6.6% rise, as well as a 3.9% gain on the First Trust Cloud Computing ETF. 

According to MarketWatch, from a total of 36 analysts covering Salesforce, 34 of them have overweight or buy ratings, while to have hold ratings. The average price target is $190.12. 

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