Salesforce (CRM) Gaining Momentum On Strong Q1 Results

Shares of salesforce.com, Inc. (NYSE:CRM) have been on the rise ever since the company reported its first-quarter fiscal 2017 results on May 18. The stock has gained nearly 8% since the announcement and eventually touched a new 52-week high of $84.48 on May 26.

Salesforce started fiscal 2017 on a strong note with better-than-expected top-line results, which also registered a significant year-over-year improvement. Revenues were primarily driven by growth across all its business segments and the Salesforce ExactTarget Marketing Cloud platform.

Moreover, bottom-line results increased substantially from the year-ago quarter and matched the Zacks Consensus Estimate. Subsequently, the company provided an optimistic second-quarter outlook and raised the fiscal 2017 guidance.

A higher number of deal wins and geographical contributions were particularly encouraging. We consider the rapid adoption of Salesforce1 Customer Platform to be a major positive for the company. Overall, Salesforce’s diverse cloud offerings and considerable spending on digital marketing remain the key catalysts.

Furthermore, part of the optimism surrounding the stock may be attributed to the company’s aggressive approach toward enhancing machine learning capabilities. This April, the company acquired MetaMind, a start-up that specializes in offering “deep-learning” services.

Machine learning is currently a hot trend in the tech space and several big technology companies like Facebook (NASDAQ:FB) , Microsoft (NASDAQ:MSFT) and Alphabet aka Google (NASDAQ:GOOGL) are grabbing a share of the pie through either acquisitions or in-house research.

Much like its peers, Salesforce too has been investing heavily over the last two years to enhance its machine learning capabilities. The Zacks Rank #3 (Hold) company took a major step in 2014 with the acquisition of predictive tools manufacturer, RelateIQ.

Last year, the company further enhanced its AI capabilities through the acquisitions of two start-ups – Tempo and MinHash. Recently, Salesforce has taken over another start-up, PredictionIO, developer of an open source-based machine learning software.

Investments in start-ups have always been one of Salesforce’s key growth strategies. Over the past few years, the company has acquired or partnered with numerous start-ups. According to a report by TechCrunch, since 2009, Salesforce Ventures, the company’s investment arm, has invested about $500 million in more than 150 enterprise start-ups.

Further, last October, Salesforce Ventures announced its plan to invest $100 million specifically in European start-ups to fuel cloud innovation and gain customers in the region.

We believe that Salesforce’s sustained focus on expanding its business through strategic acquisitions and investments will drive growth in the long run.

However, stiff competition, currency fluctuations and stepped-up investments in international expansions and data centers could impact its near-term results.