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Stock Analyst Update

Salesforce Reports Another Stellar Quarter

We are raising our fair value estimate to $202, from $186, based on rolling our model forward and modest adjustments, and view shares as attractive.


For the fourth quarter, Salesforce reported material upside compared with its outlook and offered guidance that was in line or better than CapIQ consensus. We think strong results continue to support our investment case that Salesforce is a clear leader in digital transformation, given its customers' desire to have a 360-degree view of their own customers, and that a broadening portfolio should help drive exceptional long-term growth. Management remains excited about both MuleSoft and Tableau, noting that customer demand for Tableau in particular is the strongest the company has seen following any of its previous acquisitions. We are raising our fair value estimate to $202, from $186, based on rolling our model forward and modest adjustments, and view shares as attractive.

Revenue grew 35% year over year to $4.851 billion, compared with our estimate of $4.753 billion (in line with CapIQ consensus). We see strength in the sales, service, and marketing clouds, while commerce cloud was slightly shy of our model. MuleSoft remains a key pillar of digital transformation, as it helps customers tie existing systems together to maximize the value of trapped data. Last quarter’s strength in Europe continued this quarter and outpaced other regions again.

Non-GAAP operating margin surprised to the upside again, and was 15.4%, compared with 16.5% a year ago. The decline from last year is a result of various acquisitions this year, while better-than-expected revenue is mostly responsible, we think management is incrementally more serious on margin expansion than it has been in the past. Salesforce has been targeting 125 basis points-150 basis points in margin improvement annually, which we think is achievable outside of larger acquisitions. Non-GAAP EPS was $0.66, while down from $0.70 last year, still blew past our estimate of $0.56 (in line with CapIQ consensus). Better revenue, better expense management, and to a far lesser extent, some non-operating items, drove EPS upside.

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Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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