3 Things to Look for When salesforce.com Reports on Thursday

When salesforce.com reports earnings on Thursday, keep an eye on these three things.

Aug 20, 2014 at 5:00PM

This article originally appeared as part of ongoing coverage in our premium Motley Fool Rule Breakers service... we hope you enjoy this complimentary peek!

salesforce.com (NYSE:CRM) has been an impressive growth story over the years. In fact, though salesforce.com's shares have barely budged year to date, the company guided to at least 30% revenue growth for the current fiscal year.

When the company reports its fiscal 2015 second-quarter earnings on Aug. 21, investors should keep an eye out for any potential revisions to full-year guidance, operating and free cash flow growth, and operating margin trends.

Expectations for the full year are high
Last quarter, salesforce.com guided to fiscal 2015 revenue of $5.3-$5.34 billion, up from prior guidance of $5.25-$5.30 billion (which in turn had been raised from initial guidance of $5.15-$5.20 billion first issued in the fiscal 2014 third quarter). According to Yahoo! Finance, the sell-side analyst revenue estimates for the full year range from $5.31 billion to $5.38 billion with the average sitting at $5.34 billion -- the high end of management's current guidance.

Given the analyst estimates for the full year, there appear to be expectations that the company could raise its full revenue guidance yet again (or, at the very least, ultimately come in ahead of current expectations). 

Additionally, consensus (again, per Yahoo Finance) for non-GAAP earnings per share for the year appears to be $0.51, which is at the high end of the $0.49-$0.51 guidance that salesforce.com issued last quarter.

The key takeaway, though, is that the bar is set high.

Free cash flow growth important, too
salesforce.com has been growing its revenue base quite nicely, but in the words of Fool analyst Karl Thiel, "Still, as much as we like to complain about the company's lack of GAAP profitability, there's little arguing with its cash generating power."

Thiel continues, "Free cash flow [in fiscal 2015 first quarter] was $413 million, up 80% from a year earlier, meaning that nearly $0.34 of every dollar in sales became cash available for shareholders, acquisitions, and so on."

The Motley Fool's Investing Wiki notes that free cash flow can be calculated by subtracting capital expenditures from cash generated from operations. On salesforce.com's last earnings call, CFO Graham Smith stated that management, "continue[s] to expect [salesforce.com's] full-year operating cash flow to grow in the mid-20s percentage range year over year."

Smith then addressed the company's capital expenditure plans, noting that it "continue[s] to expect [its] full-year CapEx to be in the range of 5% to 7% of revenue."

In other words, investors should keep a close eye on how quickly operating cash flow and capital expenditures are growing relative to management's expectations.

Keep an eye on operating margin
Revenue growth is an important part of the salesforce.com story, but it's also important to keep an eye on the company's operating margin (which The Motley Fool Investing Wiki defines as operating profit divided by revenue). The greater the company's operating margin, the more of its revenue base that it can actually keep as profit. 

On the company's last earnings call, CEO Mark Benioff indicated that non-GAAP operating margin for the year should improve by between 125 and 150 basis points. Investors should keep a close eye on this, particularly as Smith noted that operating margin last quarter was down 80 basis points year over year.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early, in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple and Salesforce.com. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information