Salesforce could be the SaaS force to be reckoned with

salesforce

Reporting earnings after trading hours on 8/29/18, Salesforce ($CRM) is showing excellent, healthy growth. The stock beat both earnings per share estimates and revenue estimates, and has several key takeaways for the upcoming quarters and end of FY 2018 into FY 2019.

First up, Salesforce has a massive backlog of committed work, to the tune of $9.8 billion dollars worth of growth. Keep in mind this isn’t just saying “Yea, we can do that,” this is almost $10 billion worth of signed contracts. Not bad.

Second, Salesforce saw their Service Cloud platform grow revenue to $892 million. Marketing Cloud and Commerce Cloud saw revenue jump 37% to $452 million. There is also some side revenue from Force.com and Heroku (Heroku if you aren’t familiar is a cheap and easy way to develop and deploy software, like apps and such).

With all of the political turmoil, you might think that Salesforce would be having issues overseas, but nope, international growth was incredibly solid as well. European revenue grew 32%, while Asia clocked in at a respectable 28%.

One interesting point of note, when bringing up the turmoil, it seems that currency exchange rates are taking a slight toll on potential earnings. The company is losing roughly $75 to $100 million extra just in the currency swings, and would have been able to issue stronger guidance if not for the issues that the dollar presents.

The companies free cash flow is still rising, because (like most SaaS companies) Salesforce gets paid up front for a whole year of service, but only recognizes its revenue in the quarter in which it was earned.

$CRM doesn’t pay a dividend, but when we look at a 5 YR Discounted Cash Flow model, we can still eck out a modest 6% upside to the stock, with a price target of $164.20. If the stock dips below $150, just based off bad market news or competitors biting the dust, we suggest loading up on this. A ~$10 billion backlog of paid for and committed work, almost 10% of its current market cap.

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