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Salesforce 'Drops The Ball In The U.S.'

salesforce.com, inc. CRM reported Q2 results and announced Q3 guidance, with leading indicators below expectations on currency headwinds and US weakness, Citi’s Walter H Pritchard said in a report. He maintained a Buy rating on the company, while reducing the price target from $94 to $89.

Salesforce reported its 2Q billings at $1.85 billion, representing 15 percent y/y growth, short of the Citi estimate of $1.91 billion and the Street’s $1.90 billion. The shortfall was primarily due to FX headwinds, with Constant Currency figures in-line with expectations, analyst Pritchard noted.

“Management did call out some U.S. execution issues and it has been quite some time since CRM has had execution issues so this came as a surprise,” Pritchard wrote.

Disappointing Guidance

Salesforce announced its Q3 revenue guidance in-line with Street expectations at the high-end, but the implied billings guide was significantly below expectations, despite a full quarter contribution from Demandware Inc NYSEDWRE. The company’s EPS guidance missed the Citi and Street expectations at the high-end.

“We don’t detect any market or competitive change, and believe that instead of lowering guidance slightly as needed with July softness, mgmt. kitchen-sinked October,” the analyst commented. He lowered the EPS estimates for FY18 and FY19 from $1.40 to $1.30 and from $1.88 to $1.76, respectively.

Pritchard mentioned that although the ball was dropped in the US in Q2, this is “not a thesis changer.”

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DateFirmActionFromTo
Sep 2016WunderlichMaintainsBuy
Sep 2016BarclaysMaintainsOverweight
Sep 2016Morgan StanleyMaintainsOverweight

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