Can Salesforce (CRM) Trump Estimates This Earnings Season?

Salesforce.com Inc. (NYSE:CRM) is slated to release fourth-quarter fiscal 2018 results on Feb 28. The question lingering in investors’ minds is whether this customer relationship management solution provider will be able to post a positive earnings surprise in the quarter.

Notably, Salesforce has delivered positive earnings surprises for seven straight quarters. Over the trailing four quarters, the company delivered an average positive surprise of 6.5%. So, let’s see how things are shaping up prior to this announcement.

What the Zacks Model Unveils?

Our proven model conclusively shows that Salesforce is likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chance of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Salesforce currently carries a Zacks Rank #3 and has an Earnings ESP of +1.51%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for the quarter under review is pegged at 33 cents, which is 17.9% higher than the year-ago quarter’s earnings of 28 cents. Additionally, analysts polled by Zacks project revenues of roughly $2.81 billion, up 22.6% from the prior-year quarter tally.

Let’s see what’s driving this overwhelming expectation.

Acquisitions Boosting Top-Line Growth

Acquisitions have always been one of Salesforce’s key growth strategies. Over the last two years, the company has closed as many as 14 acquisitions worth billions of dollars, including its biggest ever buyout — Demandware. These acquisitions have strengthened its position in the customer relationship-management solution-providing space. We expect the acquisition synergies to drive Salesforce’s fiscal fourth-quarter top-line performance.

Partnerships Stoking International Growth

Salesforce still generates only about 30% of total revenues from international operations, which is much lower than its rivals like Microsoft (NASDAQ:MSFT) or Oracle (NYSE:ORCL) composition of around 50%. Nonetheless, the company noted that its partnership agreements with the likes of Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) for the firms’ cloud services have been helping it expand its international operations.

Earlier, the company used to run its software at its own data centers which had been curbing its growth potentials. However, in 2016, the company decided to utilize the geographical reach of other data-center service providers to expand its international business.

The company’s first partnership in this space was with Amazon Web Services in 2016, followed by the next alliance with Alphabet last November. During third-quarter fiscal 2018, the company won several deals due to its international-expansion initiatives. Companies like National Australia Bank, BP (LON:BP), Group PSA and Hitachi picked Salesforce’s solutions to fuel digital transformation. It is most likely that the company will continue winning international deals which will drive its fiscal fourth-quarter top- and bottom-line results.

Partner Program Adding Customers

Tremendous growth in Salesforce partner certifications has been fueling the company’s top-line results. Notably, Salesforce’s partner certification has witnessed growth of five times over the last four years and more companies are willing to invest in Salesforce activities. Accenture (ACN) has emerged as one of the biggest examples for this. Notably, Accenture is currently a global leader in the Salesforce implementation service space, with more than 11,000 skilled consultants.

Notably, a number of big organizations, including Hilton, DuPont (NYSE:DWDP) and ASTACar have become Salesforce’s partners during the fiscal third quarter. Analysts covering the stock believe the fiscal fourth quarter will witness the same trend, thereby bolstering the company’s top-line performance.

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