For Immediate Release
Chicago, IL – December 6, 2021 – Zacks Equity Research Shares of salesforce.com, inc.
CRM
as the Bull of the Day, Twitter, Inc.
TWTR
asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on DiDi Global Inc.
DIDI
, Uber Technologies, Inc.
UBER
and Lyft, Inc.
LYFT
.
Here is a synopsis of all five stocks:
Bull of the Day
:
Salesforce
reported a solid Q3 on November 30 but investors took the stock down nearly 12% the next day. In this report, we’ll look at the numbers and analyst reactions to determine whether the shares are a better value now.
Salesforce’s non-GAAP earnings of $1.27 per share beat the Zacks Consensus Estimate of 92 cents. Quarterly earnings included a benefit of 28 cents per share from the mark-to-mark accounting of CRM’s strategic investments on a non-GAAP tax rate of 21.5%. However, non-GAAP earnings declined 27% from the year-ago quarter’s earnings of $1.74 per share.
Salesforce’s quarterly revenues of $6.86 billion climbed 27% year over year surpassing the Zacks Consensus Estimate of $6.79 billion. The enterprise cloud computing solutions provider has been benefiting from the robust demand environment as customers are undergoing a major digital transformation that requires fast, data-driven business intelligence and communications with customers.
Also, the recently acquired Slack business boosted revenues and contributed $280 million in total sales during the third quarter.
Quarter Details
Subscription and Support (93% of total revenues) increased 25% from the year-earlier period to $6.38 billion. Professional Services and Other (7% of total sales) revenues climbed 45% to $484 million.
Under the Subscription and Support segment, Sales Cloud revenues grew 17% year over year to $1.5 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 20% to $1.7 billion. Marketing & Commerce Cloud revenues jumped 25% to $1 billion. Salesforce Platform and Other revenues were up 51% to $1.3 billion. Also, revenues from Data increased 20% year over year to $900 million.
Geographically, Salesforce registered constant-currency revenues of 23% in America (68% of total revenues), 29% in the Asia Pacific (9%) and 35% in the EMEA (23%) on a year-over-year basis.
Salesforce’s gross profit came in at $5.02 billion, up 25% from the prior-year period. However, gross margin contracted 120 basis points (bps) to 73.1%.
Steady-to-Mixed Guidance
After the 35-cent EPS beat, Salesforce naturally raised their FY22 (ends January) adjusted EPS view to $4.68-$4.69, vs the consensus of $4.42. The company’s prior view was for $4.36-$4.38. And management raised their FY22 revenue view to $26.39B-$26.4B from $26.25B-$26.3B, vs. the consensus of $26.33B.
Salesforce also offered revised FY23 revenue guidance of $31.7B-$31.8B, vs. the consensus of $31.8B, representing upside of 20% annual growth. Another closely-watched metric about future revenues is the remaining performance obligation (RPO), which “represents all future revenue under contract that has not yet been recognized as revenue,” according to the company.
The headline RPO came in at $36.3 billion , for +20% year-over-year advance. Within that figure, the current RPO (cRPO), which “represents future revenue under contract that is expected to be recognized as revenue in the next 12 months” came in at $18.8 billion (+23% YoY), edging out the $18.7 billion consensus.
The Build Up of Bullish Expectations
Part of the set-up for any disappointment in the CRM report was that analysts were so busy upgrading their view a week prior. Here were two good examples…
BofA analyst Brad Sills raised his price target on Salesforce to $360 from $330 citing feedback from the company’s partners that suggested deal activity tracked in line or above expectations in the quarter, often accelerating from “steady” Q2 growth, largely driven by continued momentum across the broader Salesforce stack.
As Sills projected Q3 upside and increased margin discipline as likely catalysts for the shares, he reiterated the stock as a top pick a week before the Q3 print.
Jefferies analyst Brent Thill raised his price target on Salesforce to $360 from $325 on November 23 following a survey of over 40 partners that he called “the most positive survey in the past eight quarters.” In his survey, 83% of respondents noted that their pipelines had improved, while 55% said that their pipelines had improved by more than 5%.
Sentiment on Salesforce had improved since the Investor Day in late September and Thill observed that the set up heading into the company’s Q3 report was attractive due to easy comparisons for billings and CRPO combined with his robust demand checks.
Analysts Remain Bullish on the Dominator
Okay, so that was a sample of the optimism headed into the report. Now let’s look as some analyst reactions afterwards as the stock gapped down over 10%. We’ll start with the glass half-full view…
UBS analyst Karl Keirstead lowered his price target on Salesforce to $315 from $330 but kept a Buy rating on the shares. The company’s Q3 results “lacked the pizzaz” of the prior three quarters which had delivered material revenue guidance raises and improved margin narrative.
Keirstead cited the company’s “skinny” cRPO beat, weaker than expected Q4 ex-Slack cRPO guide, and weaker than expected Q4 revenue view. Following the post-earnings decline however, he stated that the stock looks “attractively priced” at 8.5-times revenue and 40-times free cash flow expected for 2022.
Morgan Stanley analyst Keith Weiss said Salesforce’s Q3 report “likely fell short for investors expecting a more robust growth rebound” given a narrower cRPO beat and smaller FY22 raise. However, he sees his core thesis around accelerating FY23 free cash flow growth as intact given organic constant currency bookings growth near 20% and margin expansion potential, leading him to keep an Overweight rating and $360 price target on Salesforce shares.
Deutsche Bank analyst Brad Zelnick recommended using last Wednesday’s post-earnings selloff in CRM as a buying opportunity. The company reported solid Q3 results that were “ahead of consensus on all metrics,” with particularly strong operating margin nearing 20%. Zelnick noted that while investors were disappointed in the magnitude of the beat, the stock “thesis remains firmly intact.”He kept a Buy rating on Salesforce with a $360 price target.
Mizuho analyst Gregg Moskowitz lowered his price target on Salesforce to $350 from $360 and kept a Buy rating as he noted “mixed” fiscal Q3 results ran into “investors generally hoping for a bit more.” Salesforce’s revenue and operating margins “showed healthy upside,” but the Q4 guidance was more subdued than expected. Moskowitz believes the shares “will likely be sluggish near-term.”
While many analysts who were very bullish prior to the quarterly report kept their lofty price targets north of $350, here was one of the few who actually found justification in the numbers to raise his PT…
Truist analyst Terry Tillman raised his price target on Salesforce to $330 from $315 citing the company’s solid Q3 results with cRPO upside and “relatively strong” performance in its core products. Tillman added that CRM’s operating margins and free cash flow were even ahead of his above-consensus estimates. Tillman further states that with the stock down 6% post-earnings, investors should buy shares “on any weakness”.
Benioff with One Foot Out the Door?
Another bit of news that may have spooked investors was the announcement that Bret Taylor, who has served as President and Chief Operating Officer since 2019 (and Chief Product Officer before that), has been promoted to company Vice Chair and Co-CEO, effective immediately.
Jefferies analyst Brent Thill, one of those who upgraded the stock before the report, saw the promotion of Bret Taylor to co-CEO, as a positive given that Taylor has been at the company for five years and “has a strong product focus.” Despite the Q4 CRPO growth guide of 19%, which would be a 400 basis point sequential deceleration and below the Street at 20% due to foreign exchange and MuleSoft headwinds, Thill was encouraged by the strength in the core business and maintained his Buy rating and $360 price target on CRM.
And the other new “co-CEO” Marc Benioff made an appearance on CNBC’s Mad Money to tell Jim Cramer and viewers “I love Salesforce and I’m never leaving. It’s my life’s pursuit.”
As he described the core of the business growing very quickly, and faster than expected to their FY26 target of $50 billion revenue, he noted “We’re very excited about the future.”
Co-CEO Bret Taylor said the core of Salesforce’s business has “never been stronger.”
Bottom line: CRM is a buy near $250 and may already be putting in a bottom there given last week’s price action.
Bear of the Day
:
I last wrote about
Twitter
as the Bear of the Day on November 1 when shares were trading near $55.
The theme after their Q3 report in late October was a wicked earnings deterioration where analysts reacted with a 58% clear-cutting of EPS estimates from $0.94 to $0.39, mostly based on the big profit miss for the quarter.
Since then, the downward revisions have kept coming with another 64% walloping to take this year’s consensus down to just $0.14.
More importantly for the forward outlook, next year’s EPS consensus has slipped 27% from $1.22 to $0.89.
By Thanksgiving, Twitter shares had slipped to $47. But to add insult to injury, on Monday the 29th, CEO Jack Dorsey announced he was stepping down and shares actually rallied briefly on the news to $52.
The insta-rally didn’t last but it was sort of reminiscent of when Steve Ballmer left Microsoft.
Analysts React Again
While few analysts would attribute (or admit if they did) their earnings forecasts to whether or not @Jack is behind the wheel, several did provided updates last week.
There were a few that did comment directly on the departure…
Jefferies analyst Brent Thill said he views Jack Dorsey’s resignation and the appointments of CTO Parag Agrawal as CEO and Bret Taylor as Chairman of the Board as positives for the stock and a “step in the right direction.”
While he believes the new leadership could reinvigorate growth and help deliver on management’s initial FY23 goals, he still sees “plenty of hurdles to clear” for Twitter to improve on its sluggish pace of ad product innovation and reverse its stock underperformance relative to peers. Thill has a Hold rating and $70 price target on Twitter shares.
Wedbush analyst Ygal Arounian lowered the firm’s price target on Twitter to $52 from $69 and kept a Neutral rating on the shares after the company announced that co-founder and CEO Jack Dorsey will resign effective immediately and will be replaced by CTO Parag Agrawal.
Dorsey’s contributions to Twitter are undeniable and as a founder and CEO he continued to play a critical role, so his stepping down is “no minor point” in the analyst’s view.
Citi analyst Jason Bazinet lowered his price target on Twitter to $47 from $60 and kept a Neutral rating on the shares. The analyst reduced Twitter’s target multiple to more closely align with the company’s peer group.
Bazinet believes the stock’s current valuation reflects much of the revenue and margin opportunity over the next few years.
Piper Sandler analyst Thomas Champion lowered his price target on Twitter to $54 from $70 on Thursday and reiterated a Neutral rating on the shares after conducting a survey of 1,500 people in the United States to better understand the company’s usage.
Overall, user growth in the U.S. may be hampered by churn while advertising relevancy turned out better than expected and subscriptions “look appealing to a narrow audience.”
The survey suggests Twitter’s user growth opportunity in the U.S. remains as 60% of respondents have not used the platform, says the analyst. However, he believes that with gross adds and churn evenly matched in the most recent period, the “setup for Twitter’s growth looks challenging.”
Also on Thursday, UBS analyst Lloyd Walmsley assumed coverage of Twitter with a Neutral rating and price target of $50, down from $69. The company’s 2023 targets look increasingly like “a stretch” and will serve as an overhang on shares the analyst noted, though he also “sees evidence” that Twitter is executing on new product development at a faster clip than historical levels.
Walmsley concluded that consensus estimates look ambitious, but risk-reward appears balanced on the stock.
Large Twitter Investors Speak Out
In my November 1 article, I noted how Cathie Wood’s ARK Invest firm was buying TWTR shares all the way down before and after earnings from as high as $63.
Well on Tuesday, ARK bought another 1.1 million shares of TWTR at an average price under $45. This was not really a surprise given their enthusiasm for the company. But they didn’t buy anymore the rest of the week on new 52-week lows under $42, which was curious to me.
But another big bull made his views known. Elliott Investment Management chief Paul Singer made it a point to let his lieutenants publicly announce that they are “confident” in the Twitter leadership. As a very successful activist investor, it’s possible he was behind the move all the time.
Elliott released the following statement on behalf of Managing Partner Jesse Cohn and Senior Portfolio Manager Marc Steinberg regarding the leadership changes announced at Twitter…
Twitter is the leading global medium for real-time conversation and engagement, and our collaboration with Jack and the company for the past two years has been productive and effective. Twitter is now executing against an ambitious multi-year plan to dramatically increase the company’s reach and value, and we look forward to the next chapter of Twitter’s story. Having gotten to know both incoming Chairman Bret Taylor and incoming CEO Parag Agrawal, we are confident that they are the right leaders for Twitter at this pivotal moment for the company.
My Bottom Line on TWTR
I love the platform and its diverse ”
communities of knowledge
” that encourage learning, collaboration, and often career opportunities across business, investing, science, education, and medicine. It should have a “long tail” existence and be able to monetize many aspects for years to come.
With 37% topline growth this year to breach $5 billion and a projected 22% advance next year to cross $6.2 billion, the stock now trades attractively at under 6 times sales. As soon as EPS estimates stabilize and start heading back up, TWTR will be a buy again.
The Zacks Rank will let you know.
Additional content:
DiDi to Exit U.S. Exchange, List in Hong Kong
DiDi Global
’s tenure as a U.S.-listed company turned out to be rather short. Barely five months after its debut as a publicly-traded company in the U.S. stock market, this Beijing-based ride-hailing giant announced its decision to get delisted from the New York stock exchange and pursue a listing in Hong Kong.
Per the press release, DIDI’s board authorized its management to undertake necessary procedures and file the relevant application(s) for delisting its ADSs from the New York Stock Exchange. At the same time, it is to be ensured that ADSs get converted into freely tradable shares of DiDi Global on another internationally recognized stock exchange. The board also authorized DIDI to pursue a listing of its class A ordinary shares on the Main Board of the Hong Kong Stock Exchange.
The decision to pull out of the New York Stock Exchange and shift to Hong Kong is probably due to the crackdown by Chinese regulators on firms including DiDi Global on issues regarding cybersecurity as China aims to tighten its control over internet data to safeguard national security.
DiDi Global went ahead with its U.S. IPO on Jun 30, ignoring requests by the Chinese regulators to put the same on hold. We remind investors that DIDI had raised $4.4 billion from its U.S. IPO. However, the stock lost value after the Cyberspace Administration of China ordered the removal of its app (Didi Chuxing) from the country’s app stores following its IPO.
The internet controller of China attributed this decision to detecting some grave issues that emanated from Didi Global’s usage of customers’ personal information. The crackdown by the Chine regulatory authorities wiped off billions of dollars of DIDI’s valuation.
DiDi Global’s latest move to delist in the United States implies that it finally gave in to the demands of China and bowed to its governmental pressures. Significantly, the Chinese government had opposed DIDI’s decision to trade publicly in the U.S. stock market.
DiDi Global is known as the “Uber of China”. DIDI bought
Uber
’s China operations in 2016. Uber went public in the United States in May 2019. UBER’s IPO price was $45. During the process, UBER issued and sold 180 million shares of its common stock.
Despite worries over the newer variants of coronavirus, Uber’s mobility business is improving. In October, Mobility gross bookings crossed $44 billion annual run rate, reflecting a rise of 14% month over month. This accounts for an 85% recovery from the October 2019 (pre-pandemic) levels. UBER expects total gross bookings to be $25-$26 billion in the fourth quarter, indicating 46-52% growth from the prior-year reported number.
Another prominent ride-hailing company in the United States is
Lyft
. LYFT made its trading debut on the Nasdaq in March 2019. Its IPO price was $72 a share.
Lyft’s performance improved sequentially over the last few quarters, courtesy of the recovery in ride volumes. LYFT’s forecast for the fourth quarter of 2021 is encouraging. Revenues for the period are expected to rise 63-65% from the year-earlier reported figure.
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