Salesforce.com, inc. (NYSE: CRM) shares remain under pressure even though the company reported strong fourth-quarter results this Wednesday.
Salesforce raised revenue guidance
Salesforce is an American cloud-based software company that provides customer relationship management service and enterprise applications focused on customer service, marketing automation, analytics, and application development.
Salesforce continues to improve its position in the market, and the fourth-quarter earnings results show that it is moving in the right direction.
Total revenue has increased by 25.8% Y/Y in the fourth fiscal quarter to $7.32 billion, while the non-GAAP EPS was $0.84 (beats by $0.09).
The operating margin for the quarter was 15%, and the company closed the fiscal year with really incredible cash flow, reaching a milestone of $6 billion (up 25% compared with the previous year).
Marc Benioff, CEO of the company, said that Salesforce is continuing to be one of the fastest-growing enterprise software companies in history, and it is on track to become the world’s #1 enterprise cloud company.
The company’s management expects revenue to be between $7.37 billion and $7.38 billion for the next fiscal quarter, while the earnings per share should be around $0.94. Revenue for the full fiscal year should be around $32 billion, and earnings per share should be approximately $4.6 per share. Marc Benioff, CEO of Salesforce, added:
We continue to see just tremendous, tremendous demand from customers across every industry, every geography, and every product category. We’re excited to raise our fiscal year ’23 revenue guidance to $32.1 billion, something I’ve been excited to talk about at the high end of the range, representing 21% growth year-over-year.
Despite this, fourth-quarter results and revenue outlook disappointed some analysts, and shares of Salesforce continue to trade very close to strong support at $200. Dan Ives, an analyst from Wedbush Securities, lowered his price target to $275 from $315 but also said that the risk/reward ratio on the stock “is very compelling.”
Morgan Stanley analyst Keith Weiss said that investors are still concerned about the pace of growth and the company’s commitment to growing margins.
Fundamentally looking, Salesforce trades at more than fifty times TTM EBITDA, and with a market capitalization of $205 billion, shares of this company are certainly not cheap. Salesforce is in a good position to grow its business, but if the US stock market enters a more significant correction phase, the share price could be at much lower levels.
$200 represents a support level
Salesforce shares have weakened more than 10% from their recent highs registered in January, and if the price falls below $200 support, it would be a strong “sell” signal.
On the other side, if the price jumps above $220, it would be a signal to trade shares, and the next target could be around $230.
Summary
Salesforce is in a good position to grow its business, but fundamentally looking, Salesforce’s valuation is certainly not cheap, and there are better long-term investment opportunities at the moment. Salesforce shares have weakened more than 10% since the beginning of January 2022, and if the price falls below $200 support, it would be a strong “sell” signal.
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