Salesforce (NYSE: CRM) shares were 5% lower following Q3 results which came in above expectations but fell short in terms of guidance. However, there was more focus on the company's acquisition of Slack (Nasdaq: WORK) at a value of $27.7 billion which became official on the conference call.
Inside the Numbers
In the third quarter, Salesforce earned $1.15 per share which was well-above analysts' expectations of $0.75 per share. Revenue came in higher as well at $5.42 billion vs expectations of $5.2 billion. Revenue was 20% higher than the previous year, while earnings increased by 30%. However, there was a slight deceleration from last quarter's 29% revenue growth.
In terms of breakdown, Salesforce's Sales Cloud, helps companies keep track of current and potential customers, accounted for $1.3 billion in revenue which was a 12% increase. Service Cloud generated $1.4 billion in revenue which is a 21% increase. The other category which includes Tableau accounted for $1.6 billion in revenue.
Despite such strong performance shares were lower as guidance came in softer than expected. The company sees Q4 earnings per share of $0.73 to $0.74, while analysts were expecting $0.86 per share. In terms of revenue. Salesforce projects between $5.665 billion and $5.675 billion which were slightly above estimates of $5.52 billion.
The company's full-year guidance for next year was above expectations. It expects $25.45 billion and $25.55 billion which includes an additional $600 million from Slack. This is basically a 20% increase in revenue from this year and was above expectations of $24.5 billion in revenue.
Stock Price Outlook
Last quarter, Salesforce's stock jumped 25% to new highs. Since then, the stock has trended lower and given back the bulk of these gains. This quarter also marked Salesforce's entry into the Dow Jones Industrial Average (NYSE: DIA). Another development was that the company's CFO, Mark Hawkins, announced his retirement after six years of service.
Salesforce remains 45% higher YTD which compares favorably to the S&P 500's (NYSE: SPY) 15% gain. Looking forward, the stock looks attractive on a relative basis. It remains attractively priced despite having more growth potential than the vast majority of stocks.
From a technical perspective, the stock is offering a good risk/reward, following its three-month-long consolidation. The company seems to be shifting from a provider of CRM software to improve sales to a complete provider of cloud-based, enterprise software which will help it compete with Microsoft (Nasdaq: MSFT).