As Salesforce.com Inc. moves from Internet upstart to technology stalwart, investors should get their heads out of the clouds.
The cloud-computing pioneer specializing in customer-relationship software has a history of managing Wall Street’s expectations appropriately. It has met or exceeded analysts’ profit and revenue forecasts in each of the past six quarters.
But clearing that bar and making money are two different things. Turning an annual profit has been elusive for Salesforce recently; operating expenses have grown faster than revenue in each of the past four fiscal years.
Other metrics, such as free cash flow and the company’s so-called billings, may offer clues to how investors will react to Salesforce’s fiscal third-quarter results Wednesday. With the stock up over one-fifth this year, and trading at a pricey valuation, any misstep could be punished.
Wall Street expects Salesforce’s billings, a measure of its top line that adds revenue plus any change in deferred revenue, to gain 19% to $1.5 billion in the third quarter. Billings are important, particularly for cloud companies, because they are typically viewed as a forward-looking measure of future revenue.
Meanwhile, free cash flow is expected to hit $1.16 billion this fiscal year, up from $883 million last year and $576 million two years ago. But stock-based compensation has hovered around 45% of free cash flow in recent years. Should the stock—which has doubled in three years and risen tenfold over the past decade—suffer any meaningful decline, Salesforce will find it harder to pay employees with stock and options, thereby shifting more compensation to cash.
Salesforce’s price is 37 times the next 12 months’ projected free cash flow, according to FactSet, significantly pricier than tech behemoths Oracle Corp., SAP SE and International Business Machines Corp. Over the past five years, that premium has expanded even as Salesforce’s revenue has quadrupled and those three companies have seen their top lines shrink by nearly 5% collectively.
Read More : http://www.wsj.com/articles/cloud-cover-remains-over-salesforce-com-1447791762
The cloud-computing pioneer specializing in customer-relationship software has a history of managing Wall Street’s expectations appropriately. It has met or exceeded analysts’ profit and revenue forecasts in each of the past six quarters.
But clearing that bar and making money are two different things. Turning an annual profit has been elusive for Salesforce recently; operating expenses have grown faster than revenue in each of the past four fiscal years.
Other metrics, such as free cash flow and the company’s so-called billings, may offer clues to how investors will react to Salesforce’s fiscal third-quarter results Wednesday. With the stock up over one-fifth this year, and trading at a pricey valuation, any misstep could be punished.
Wall Street expects Salesforce’s billings, a measure of its top line that adds revenue plus any change in deferred revenue, to gain 19% to $1.5 billion in the third quarter. Billings are important, particularly for cloud companies, because they are typically viewed as a forward-looking measure of future revenue.
Meanwhile, free cash flow is expected to hit $1.16 billion this fiscal year, up from $883 million last year and $576 million two years ago. But stock-based compensation has hovered around 45% of free cash flow in recent years. Should the stock—which has doubled in three years and risen tenfold over the past decade—suffer any meaningful decline, Salesforce will find it harder to pay employees with stock and options, thereby shifting more compensation to cash.
Salesforce’s price is 37 times the next 12 months’ projected free cash flow, according to FactSet, significantly pricier than tech behemoths Oracle Corp., SAP SE and International Business Machines Corp. Over the past five years, that premium has expanded even as Salesforce’s revenue has quadrupled and those three companies have seen their top lines shrink by nearly 5% collectively.
Read More : http://www.wsj.com/articles/cloud-cover-remains-over-salesforce-com-1447791762
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