What an earnings report do or Salesforce.com’s share price?

Salesforce.com [CRM] share price has strengthened in 2020, rising 24.9% from $166.17 in early January to $207.53 on 21 August.

Salesforce.com’s share price did suffer in the market sell-off in March, falling to $124.30 on 16 March. After a small rally, it dropped back down to $134.31 in early April.

The company has been boosted as businesses around the world seek out its cloud-based customer relationships management systems amid coronavirus pandemic lockdowns.

Investors will be keen to see if Salesforce.com’s share price will continue to rise when it announces its second-quarter earnings report on 25 August.

Tough competition

In Q1 Salesforce.com reported a 30% year-over-year leap in revenues to $4.87bn. It saw a 16% revenues hike for its sales cloud segment — that allows companies to track leads and automate sales processes — and a 22.7% rise for customer support system service cloud, according to CNBC.

Marc Benioff, CEO of Salesforce.com, said the company’s care product had helped companies stay in touch with customers and employees as they worked remotely.

However, a forecast that full-year revenues would rise by just 17% to $20bn left investors concerned that this could reflect a tightening in enterprise spending, particularly among small- and medium-sized firms, as the pandemic and recession hit.

There are also concerns that Salesforce.com is suffering from increased competition from the likes of Oracle [ORCL] and Microsoft’s [MSFT] CRM option Dynamics 365 which is being used by corporate giants such as Coca-Cola [KO] and Walgreens Boots [WBA].

“This is just the first domino of Microsoft’s rise and Salesforce.com’s fall,” said Daniel Newman, principal analyst at Futurum Research. “D365 has seen consistent growth outpacing Salesforce.com. I believe Microsoft will be number one by market share in this segment within three years.

“Users want systems to work together putting Microsoft in a much better position than Salesforce.com, which hasn’t been able to keep up with its pace of innovation.”

Salesforce.com stated that Q2 revenues would be strong coming in at around $4.9bn, up 22.6% from the same time last year.

Zacks analysts expect its Q3 revenues to rise 11% with full-year revenues set to climb 17.3%. If so, this would mark its slowest sales growth as a public firm compared with a 29% rise in 2020 and a 26% increase in 2019.

“Despite its ability to grow during the challenging environment the firm lowered its fiscal year outlook amid coronavirus uncertainty,” said Zacksanalyst Benjamin Rains. “That said, its subscription-based cloud software offerings remain as vital as ever during the remote work landscape, and its Tableau acquisition – which it completed in August 2019 – is expected to boost its data analytics business.”

Analysts at Zacks forecast that the group will post earnings of $0.67 per share in the quarter, up by 1.5% on last year.

Zacks analysts said Salesforce.com would benefit from a “robust demand environment” in Q2 as customers launch major digital transformations, especially in the public sector. However, increased investment in international expansion and data centres could hit its profits.

Despite Salesforce.com shares lagging behind the broader tech space since the market’s lows, up 43% compared to 57%, Rains said that its 121% climb over the last three years outpaces the broader tech sector’s 60%.

“Tech giants from Apple [AAPL] to Tesla [TSLA] have proven resilient,” added Rains. “Therefore, investors with a longer-term horizon might want to consider CRM stock.”

Intense competition

The consensus among analysts according to MarketScreener is to buy.

BMO is one of those with a buy rating and a price target of $230. JMP recently raised its price from $191 to $254. It has an outperform rating on the stock liking its “strength in the Service cloud” and “sales morale”.

Brent Thill, an analyst at Jeffries, upped his target price from $220 to $235. He stated that that Q2 earnings look positive and highlighted an improvement in Salesforce.com’s pipeline. The share’s, he says, are attractively valued.

The group may be facing more intense competition and questions over its IT spending as the global economy suffers. But Salesforce.com has never been a company which will die wondering, having bought 63 companies in its lifetime, according to Crunchbase.

It is proactive in seeking new growth routes and is reportedly eyeing up another acquisition – a $20bn offer for Datadog and its cloud monitoring as a service solution. This would mark its largest purchase to date.