The days of the Rolodex are over and the Internet is making it more important for salespeople to stay in continuous touch with their clients. You can no longer count on your sales people to page through their client files and make the right calls to the right people at the right time. After several decades of dozens of standalone call management software programs the cloud has put state of the art tools in the hands of everyone.
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CRM - SalesForce.com - Company Description
Salesforce.com provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. They provide an entire menu of applications tailored to various industries with an emphasis on sales force automation and customer resource management.
The last six analysts ratings changes have been upgrades with four new analysts initiating coverage with a buy. Salesforce is growing quickly with revenues growing 24% in 2015 to $6.67 billion. Subscription and support revenues rose to $6.21 billion and accounted for 93% of all revenue. These fees continue from quarter to quarter and should continue growing.
Morgan Stanley said customer demand for applications software was expected to remain quite strong and Salesforce.com was positioned to make the most of this development.
The Salesforce.com CEO said sales efforts to enterprise customers were becoming more time consuming because of the greater complexity of the large enterprises but once sold they became very profitable long term assets. Once a large enterprise invests in Salesforce.com and trains its thousands of employees there is a huge inertia factor that prevents them from leaving. That subscription revenue becomes repeatable for a long time.
These longer sales and implementation cycle means that Salesforce.com has a lot of delayed revenue that it will recognize in future quarters in addition to the current revenue for those quarters. This is the equivalent of a snowball rolling down hill. Future revenue is growing even though it is not readily apparent. In Q4, the company reported deferred revenue of $4.29 billion and its unbilled deferred revenue was $7.1 billion.
For Q4 Salesforce reported earnings of 19 cents that matched estimates but revenue of $1.81 billion beat estimates for $1.79 billion. The company guided higher for 2016 and shares rose 8% on the news.
The next earnings are May 18th.
Shares moved sideways from the earnings spike for three weeks and are just now starting to move higher. Given a positive market, I think they will retest the highs in the weeks ahead.
I am recommending the May $75.00 call even though it is a little farther away from the money and slightly more expensive than the April $72.50 call. With only 32 days left in the April cycle we are reaching the point where premium decay will accelerate. If we hit a soft patch in the market the April premiums may not have time to recover. The May premium will cover the earnings on May 18th so when we exit before earnings there will still be some expectation built into the premium.
Buy May $75 call, currently $3.15, initial stop loss $66.85
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