Friday, November 19, 2010 (CRM) With Slight Beat on EPS; In Line Guidance - Still Surges After Hours

For nearly a decade the stock that has been the most difficult to short due to valuation has probably been (CRM) [Jul 2, 2008: Does Valuation Matter?]   It is always expensive and even when it reports "in line" type of quarters like it did last evening, it still surges.  Granted there were upside surprises in revenue both in the current quarter and guidance but in my mind that is a net negative.  Why?  Despite coming in at higher than expected revenue - the EPS was "in line" with analysts.  Which means something was lost either via expenses or margins.  But it doesn't even pay to research it because the market is giddy, sending CRM up another 9% in after hours.   (note - based on some of the stories it might be due to a hiring spree)
  • Salesforce's job postings in September grew at the fastest rate in at least two years, which "reflects recent bullishness, but also dampens margins in the short term," according to Mark Murphy of Piper Jaffray.
While liking the company, and owning it on and off over the years (and trying to short it a few times - always a failure), the valuation is always of a boggling nature to me.   And action like we see now in the stock make it a short sellers nightmare. [Sep 2, 2010: [Video] I Want my]  If last night's prices hold this morning, should be at new yearly highs today.

A quick look at earnings - estimates were 31 cents and $410.5M in revenue for third quarter.  They came in at 32 cents on $429M in revenue.  Usually high multiple stocks need to "really beat" by a wide margin to avoid being punished, but apparently CRM is an exception.   I guess the revenue guidance was enough to cause shorts to scramble.
  • For Q4, the company sees revenue of $447 million to $449 million, with non-GAAP EPS of 27-28 cents; the Street consensus has been for $424.8 million and 28 cents.
  • The company's paying customer base rose 4,700 during the quarter to about 67,900, 31 percent larger than it was in a year earlier.

  • For the current Q4, Salesforce expects to earn 27-28 cents a share, at best in line with analyst views for 28 cents. But its revenue target of $449 million is far more upbeat than analysts' bet for $424.8 million. It would be a 36% gain.
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