Technology Stocks, inc. (NYSE:CRM) Delivers the Goods and Forces a Rethink on the Cloud Bubble Pop Thesis, inc. (NYSE:CRM), a leading cloud software bellwether, handily beat expectations on the top and bottom line for the eleventh consecutive quarter. That’s nothing to sneeze at in this current market context.

Upon digesting the news, the market granted the stock an extremely favorable response, lifting shares over 10% higher, breaking the stock back above its key 200-day moving average., inc. (NYSE:CRM) reported third quarter EPS and revenue above its forecast while unearned revenue grew 25% versus its 20% guidance. Fourth quarter EPS guidance was a little soft, but the revenue forecast for the fourth quarter was above consensus and the company raised its sales and earnings outlook for fiscal 2019.

As we have noted in the past, investors in this stock have a track record that suggests they are much more focused on top-line growth (and cash flow) rather than EPS. Hence, the less-than-perfect EPS guidance note didn’t really dent enthusiasm.

Helping to firm up the narrative, the company gave 2020 fiscal year guidance that was clearly above consensus. Remaining performance obligation, representing future revenues that are under contract but have not yet been recognized (backlog), ended the third quarter at ~$21.2 bln, an increase of 34% yr/yr.

Remaining performance obligation for the next twelve months grew 27% to $10 bln, which was likely a somewhat positive surprise.

If you look at the monthly chart shown just above, the trend is extraordinary, and it comes from one basic phenomenon: the company hasn’t missed on the top line since January of 2006 as its subscription business model results in highly visible revenue streams.

So, quite frankly, strong results should not come as much of a surprise to the market.

That said, we would assume Wednesday’s extremely strong response to be due to the narrative of softening sentiment around cloud plays in the market right now. It’s as if the world has given up this bubbling facet of the market – “cloud has popped, and the mess will be nasty”.

CRM’s performance and the market’s response gives the sense that there might some more life left in this trend yet. Valuations among the group took off after Salesforce acquired recent IPO MuleSoft for $6.5 bln in cash at a mid-teens sales multiple.

That effectively justified the frothy valuations seen in the software space. Dozens of software stocks traded with double-digit sales multiples this summer before the valuation correction took hold last month. Continued weakness in CRM stock near term may indicate that growth stocks remain out of favor in the current market environment.

However, thus far, we are seeing the opposite, and it should be noted.

With a ~$103 bln valuation, Salesforce trades at ~6.5x sales, or ~28x free cash flow estimates for next year.


Getting to Know You, inc. (NYSE:CRM) trumpets itself as a company that develops enterprise cloud computing solutions with a focus on customer relationship management.

The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices.

It also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as a field service solution that enables companies to connect agents, dispatchers, and mobile employees through a centralized platform, which helps to schedule and dispatch work, and track and manage jobs in real-time.

In addition, the company offers Marketing Cloud to plan, personalize, and optimize one-to-one customer marketing interactions; Commerce Cloud, which enables companies to enhance engagement, conversion, revenue, and loyalty from their customers; and Community Cloud that enables companies to create and manage branded digital destinations for customers, partners, and employees.

Further, it provides Quip collaboration platform, which combines documents, spreadsheets, apps, and chat with live CRM data; Salesforce Platform for building enterprise apps, as well as artificial intelligence (AI), no-code, low-code, and code development and integration services, including Trailhead, Einstein AI, Lightning, Internet of Things, Heroku, Analytics, and AppExchange; and solutions for financial services, healthcare, and government.

Additionally, the company offers cloud services, such as consulting and implementation services; training services, including instructor-led and online courses; and support and adoption programs. It provides its services through direct sales; and consulting firms, systems integrators, and other partners., inc. has a partnership with Apple Inc. to develop customer relationship management platform.

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