Salesforce (CRM) To Report Q2 Earnings: What's In The Cards?

salesforce.com, Inc. (NYSE:CRM) is set to report second-quarter fiscal 2018 results on Aug 22. Last quarter, the company posted a positive earnings surprise of 20%. Additionally, the stock has a mixed earnings surprise history, beating the Zacks Consensus Estimate twice, matching in one and missing in the other occasion. However, the average earnings surprise remains positive at 2.5%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Last quarter, although Salesforce disappointed on the earnings front, it continued to witness solid growth in revenues. The improvement was primarily attributed to the rapid adoption of the company’s cloud-based solutions. Also, higher demand for Salesforce ExactTarget Marketing Cloud platform, part of the Salesforce1 Customer Platform, contributed to this improvement. We expect this trend to continue in the second quarter as well.

A higher number of deal wins and geographical contributions are also likely to boost results in the soon-to-be-reported quarter. Overall, the company’s diverse cloud offerings and considerable spending on digital marketing remain growth catalysts. Moreover, strategic acquisitions and resultant synergies are anticipated to drive the fiscal second-quarter results.

Considering increased customer adoption and satisfactory performances, market research firm –Gartner – acknowledged Salesforce as the leading social CRM solution provider. We believe that the rapid adoption of the company’s platforms indicates solid prospects in the expanding cloud computing space, which will, in turn, bolster results in the quarter to be reported.

On the flip side, although the company has been growing reasonably in the cloud market, its prospects have been rationalized to a considerable extent due to intensifying competition from Microsoft (NASDAQ:MSFT) Oracle Corp (NYSE:ORCL). and SAP AG (DE:SAPG). In addition, currency fluctuations and stepped-up investments in international expansion and data centers could hurt the bottom line in the fiscal second-quarter results.

Earnings Whispers

Our proven model does not conclusively show that Salesforce will likely beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because the Most Accurate estimate of 9 cents comes in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Salesforce carries a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Vmware, Inc. (NYSE:VMW) , scheduled to release earnings on Aug 24, currently has an Earnings ESP of +4.88% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Broadcom Limited (NASDAQ:AVGO) , expected to release earnings on Aug 24, currently has an Earnings ESP of +2.57% and a Zacks Rank #3.

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