A 2% y-o-y increase in research and development expenses saw the Customer Relationship Management (CRM) software and cloud computing service provider Salesforce.Com Inc (NYSE: CRM) report a swing to a loss in the fiscal 2018 first-quarter, from a net profit in the similar quarter last year. However, the revenues and non-GAAP earnings jumped past the Wall Street estimates. Following the earnings release, initially, the market reacted positively to the news by taking the stock to a new 12-month high of $91. However, the GAAP net loss triggered a sell-off that pushed the stock below $90. Still, we expect the stock to rally in the short-term due to the details provided underneath.
The San Francisco, California-based company reported a net loss of $9.21 million, or $0.01 per share, on revenues of $2.39 billion in 1Q18. In the same period last year, the Software-as-a-Service provider reported a net income of $38.76 million, or $0.06 per share, on revenues of $1.92 billion. Subscription and support revenues were $2.20 billion in Q1 2016, an increase of $425 million from $1.78 billion in Q1 2017.
In the first quarter of 2018, the research and development expenses of $376.08 million accounted for 16% of the total expenses. During the first quarter of fiscal 2017, the research and development expenses of $260.97 million accounted for only 14% of the total expenses. The 2% increase was responsible for the GAAP net loss during the recent quarter.
Excluding amortization of purchased intangibles, stock-based expense, and income tax effects, among others, the 1Q18 non-GAAP net income increased to $202.78 million, or $0.28 per share, from $167.53 million, or $0.24 per share in 1Q17. Analysts polled by Thomson Reuters anticipated earnings of $0.26 per share on revenues of $2.35 billion.
For the quarter ending August, Salesforce expects revenue in the range of $2.51 billion to $2.52 billion. The 2Q18 earnings are anticipated between $0.31 and $0.32 per share. On average, analysts surveyed by Zacks are expecting earnings of $0.31 per share on revenues of $2.48 billion.
For fiscal 2018, the company aims to report revenue of between $10.25 billion and $10.30 billion. Analysts are expecting revenues of $10.18 billion. The EPS is forecasted to be in the range of $1.28 to $1.30. The market expects Salesforce to report earnings of $1.29 per share.
In the recent quarter, Salesforce generated cash from operations of $1.23 billion, up 17% on a y-o-y basis. The cash and cash equivalents at the end of first-quarter 2018 were $2.02 billion, up from $1.80 billion in the same quarter last year. Thus, considering the strong non-GAAP income and upbeat Q2 2018 view, we expect Salesforce to remain bullish.
The self-illustrative price chart provided below shows that the stock has tested the support level of 86.60, and closed above it. The MACD indicator is ascending above the zero line. Thus, we anticipate the stock to move further upwards into uncharted territory.
We are planning to invest in a call option to gain from the prevailing uptrend. To increase the probability of success, we would look for an option valid for a period of one week. Furthermore, we would prefer to enter at a strike price of about $88.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
