Citi analyst Tyler Radke reiterated a Neutral rating on Salesforce, Inc.
As investors head into the company's fourth-quarter and year-end with balanced views as stabilizing demand signals are offset by lagging seat-based down-sell headwinds limiting reaccelerating growth potential.
Radke's partner checks were mixed but leaned modestly more positive than last quarter as he heard more greenshoot anecdotes (front office budgets back to growth objectives).
That said, continued long sale cycles and renewal/down-sell pressures persist, as per the analyst. This leads Radke to boost his estimates modestly for fiscal 2025 (Citi CC revenue rise ~200bps), though still slightly below consensus.
The analyst expects continued margin expansion (Citi estimates +150bps of operating margin expansion) in fiscal 2025, as generative AI investments are offset by continued cost discipline.
Ultimately, he remained Neutral rated as Salesforce may struggle to accelerate revenue growth in fiscal 2025 (vs. the broader software universe) as per the analyst.
Radke projects fourth-quarter revenue and EPS of $9.22 billion (consensus $9.13 billion) and $2.22 (consensus $2.21).
Morgan Stanley analyst Keith Weiss reiterated an Overweight with a price target of $350.
With Salesforce performing just in line with large-cap software intra-quarter, maintaining its valuation discount to the peer-set despite an easier bookings comp, stable-to-improving checks, and price increases rolling through the model, Weiss noted Salesforce's upcoming fourth-quarter earnings as a likely positive catalyst for shares.
While he acknowledged that Salesforce has become increasingly embraced as an Overweight name amongst the investing community since his upgrade in December, he still finds a healthy amount of debate around the potential for a sustainable re-acceleration in revenue growth in his investor conversations, leading him to believe potential upside to fourth-quarter & fiscal 2025 (calendar 2024) estimates is not yet in the price ahead of earnings.
Further, valuation suggests investors remain largely unconvicted about the durability of growth at Salesforce.
While consensus expectations for fourth-quarter YoY cRPO growth are anchored in the ~10% YoY range (~10.5-11% constant currency); Weiss noted scope for upside in the quarter.
A solid cRPO beat should enable initial fiscal 2025 revenue guidance modestly above consensus fiscal 2025 revenue estimates of ~11% YoY growth while still providing room for upside throughout the year.
In the event Salesforce can deliver a larger cRPO beat in the fourth quarter relative to his expectation for ~100-150 bps of upside, Weiss noted scope for the company to guide to a revenue acceleration in fiscal 2025 (albeit modest acceleration), which he said is crucial to closing the current valuation gap vs. large-cap peers, with the trajectory of topline growth still heavily debated.
Tailwinds encourage Weiss, including signs of stable-to-improving enterprise spending, a more focused, bundle-oriented sales motion, early indications of interest around Data Cloud, and the potential for generative AI adoption in the back half of the year. At the same time, on the margin front, Weiss continues to see opportunities for efficiency gains and cost optimization to drive continued improvements in profitability, albeit with less margin expansion relative to the prior 12 months. CRM remains Weiss' top pick in large-cap software.
Weiss projects fourth-quarter revenue and EPS of $9.23 billion (consensus $9.22 billion) and $2.29 (consensus $2.27).
Price Action: CRM shares traded higher by 3.46% at $302.99 on the last check Monday.
