Morningstar | Salesforce Reports Solid 1Q Results and Raises Its Full-Year Outlook; Shares Undervalued
Salesforce reported upside versus our fourth-quarter expectations and offered a favorable outlook for the remainder of the year. Therefore, we are maintaining our $186 fair value estimate and wide moat rating. The quarter reinforces our thesis that the company remains a strategic partner for customers who are looking for holistic solutions for real business problems as they undertake their own digital transformations. The company’s breadth of solutions remains critical, as customers continue to sign larger deals involving multiple clouds. The general release of Customer 360 later this year should hammer home the strategic importance of Salesforce as its customers are looking for tightly integrated software applications that enable customer views across geographies and from multiple touch points with stakeholders. Management is also excited about myTrailhead learning, which is in its early days but hints that the company could one day be a larger HCM vendor.Management expects solid activity to continue throughout the year, and therefore raised full-year revenue by $125 million at the midpoint and EPS guidance by $0.14. The company closed the Salesforce.org acquisition today, which will add at least $40 million to revenue in the second quarter and $150 million to $200 million for the year. As part of the acquisition, Salesforce will take a one-time non-cash charge of approximately $200 million next quarter. Foreign exchange is expected to be a $200 million headwind to revenue growth for the year, more than offsetting the revenue gained in the Salesforce.org acquisition. Management also reiterated its long-term revenue target of $26 billion to $28 billion in fiscal 2023.
All clouds were ahead of our model as solid demand across product areas and all geographies drove 2% revenue upside. The company recorded a mark to market gain on its strategic investment portfolio that drove $0.27 in EPS, which even after removing this effect, was still $0.08 ahead of our model.
Salesforce.Com is engaged in customer relationship management technology. The company's Customer 360 is an integrated platform that unites sales, service, marketing, commerce, integration, analytics and more to give companies a single, shared view of their customers. Through its platform and other developer tools, the company also enables third parties to develop additional functionality and applications, or apps, that run on its platform, which are sold separately from or in conjunction with the company's service offerings. The company's cloud service offerings include sales cloud, service cloud, marketing and commerce cloud, and salesforce platform and other.
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