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Salesforce Is Firing on All Cylinders

By Daniel Sparks – Nov 28, 2018 at 6:36PM

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Management just guided for up to $16 billion of fiscal 2020 revenue as the software-as-a-service giant benefits from broad-based momentum.

Though software-as-a-service company Salesforce.com's (CRM -2.02%) stock has taken a breather recently, its business hasn't. Strong revenue growth and "incredible customer demand" in the company's third quarter of fiscal 2019 prompted Salesforce to raise its outlook for fiscal 2019, noted Salesforce co-CEO Keith Block in the company's third-quarter earnings release.

A look at the stock's recent performance shows a different story: Shares were down 20% between Oct. 1 and Nov. 27 -- and even after the stock's big jump on Wednesday, following Salesforce's better-than-expected third-quarter earnings release, the stock is still down about 13%. But for investors willing to look past the stock's recent decline, which has been driven primarily by a broader-market sell-off that has hit tech stocks particularly hard, there's a lot to like about Salesforce's recent business performance.

A diagram showing three laptops connected to a cloud

Image source: Getty Images.

Here's an overview of some of the key takeaways from Salesforce's third quarter.

Salesforce is seeing significant top-line momentum

Though Salesforce's third-quarter year-over-year revenue growth rate of 26% is impressive in and of itself, some investors might note that it does mark a slight deceleration compared to the company's 27% revenue growth in Q2. 

However, when investors zoom out to look at Salesforce's year-to-year revenue trends, the company is actually on pace to deliver faster revenue growth in fiscal 2019 than it did in fiscal 2018. As Block pointed out in the company's third-quarter earnings call, the high end of Salesforce's guidance range for full-year fiscal 2019 revenue of $13.24 billion implies 26% revenue growth (higher than Salesforce's fiscal 2018 year-over-year revenue growth rate of 25%). And given the company's history of reporting revenue above its guidance ranges, 26% growth for the year is a likely outcome.

Growth is broad-based

Salesforce's momentum is unlikely to run into any sudden roadblocks, as the company is benefiting from broad-based growth across its entire business.

"We continue to see this in Q3 with strong performances across every industry, every market segment, and every geography," explained Block in the company's third-quarter earnings call. "We grew 25% in the Americas, 26% in APAC and 31% in EMEA in constant currency."

This momentum is also evident by breaking down the company's subscription and support revenue by cloud. All of its clouds are seeing double-digit revenue growth, with sales cloud revenue rising 11%, service cloud climbing 24%, and marketing and commerce cloud soaring 37%. In addition, Salesforce's platform and other cloud revenue was up 51% -- but this was helped by $105 million of revenue from the company's recent acquisition of MuleSoft.

Overall, Salesforce's third-quarter results continued to highlight why the company's growth story is far from over. As Block put it in the company's third-quarter earnings release, "Companies across every industry, in every geography have a mandate to digitally transform their businesses and are turning to Salesforce as a strategic partner."

Looking ahead, Salesforce says its fiscal 2020 revenue could be as high as $16 billion -- up significantly from the $13.23 to $13.24 billion it expects this fiscal year and the $10.48 billion in revenue it achieved in fiscal 2018.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Salesforce.com. The Motley Fool has a disclosure policy.

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