Salesforce (CRM) didn’t quite get the reaction from investors that it had expected after reporting a top- and bottom-line consensus beat in its fiscal Q3 print. Lackluster guidance for the fourth quarter was to blame for the investor disinterest.
One of the points of concern was the company’s decelerating current remaining performance obligations (cRPO), or the estimate of the revenues that Salesforce is obligated to generate from its contracts in the next 12 months. The Q3 cRPO grew 23% year-over-year, but in Q4, the company expects the metric to grow 19% year-over-year, which was below expectations of the Street.
Expert Weighs In
Following the earnings call, Needham analyst Scott Berg and his associates weighed in on the company’s strengths, challenges, and other developments to better understand how it will fare over the short- and long-term. (See Analysts’ Top Stocks on TipRanks)
Berg was upbeat about the company’s outperformance versus the broader e-commerce market, which was noted by the management during the recent cyber week with Salesforce. However, despite the strong demand for Tableau and MuleSoft, Salesforce acknowledged that scaling its Mulesoft offering came with a few headwinds which impacted its Q3 and are likely to impact Q4 as well.
Nonetheless, Berg is not too worried about this drawback for the longer term. “Management believes it has addressed these issues, and we do not expect additional headwinds in FY23. In the future, the company will break out MuleSoft and Tableau revenue in a separate ‘Data’ segment, while including Slack in Platform revenue,” he noted.
Berg believes that reiterating a Hold rating on Salesforce is more prudent at the present moment. He argued that Salesforce’s “updated FY23 guidance was consistent, but not quite at the ‘Rule of 40’ level” which attracts investors to an extent that results in meaningful outperformance in its shares.
Modestly Increasing Website Traffic Trends
Salesforce’s website visits from unique visitors grew a moderate 3.47% in Q3. We found this with the help of TipRanks’ Website Traffic tool, which draws on data provided by SEMrush (SEMR).
Moreover, the stock prices also went up sequentially, specifically, 23.87%. These metrics speak of the solid performance delivered by Salesforce in Q3.
Wall Street’s Take
Turning to Wall Street, the analyst consensus is, however, quite optimistic on the company’s prospects, with a Strong Buy rating based on 27 Buys and 4 Holds. The average Salesforce price target of $336.38 indicates an upside potential of 33.75%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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