Salesforce Remains Bearish on Loss of HP’s CRM Contract

Salesforce Remains Bearish on Loss of HP’s CRM Contract
September 22, 2016

 
On the last day of August, the cloud computing company Salesforce.com (NYSE:CRM) reported an increase in the fiscal 2017 second-quarter earnings and revenue, compared to corresponding quarter of fiscal 2016. The Q2 2017 results also topped analysts’ estimates. However, the share price of the company began to spiral downwards. The dim third-quarter revenue view and a slash in the fiscal 2017 earnings outlook contributed to the downfall in the share price. The downtrend is expected to continue due to the reasons discussed below. The stock finished Wednesday’s trading session at $74.18.

The San Francisco, California-based company reported second-quarter net income of $229.62 million or $0.33 per share on revenue of $2.04 billion, compared to a net loss of $852 million or nil earnings per share on revenue of $1.63 billion in the prior year’s similar quarter. Excluding charges, the second-quarter non-GAAP earnings increased to $170.43 million or $0.24 per share, from $128.26 million or $0.19 per share in the second-quarter of 2016. The analysts surveyed by Thomson Reuters anticipated earnings of $0.22 per share on revenue of $2.02 billion.

For the third-quarter, the company anticipates revenue in the range of $2.11 billion to $2.12 billion. It is lower than the analysts’ expectation of $2.13 billion.

Salesforce also trimmed its full-year 2017 non-GAAP earnings view to a range of $0.93 to $0.95 per share, from the prior outlook of between $1.0 and $1.02 per share.

The company has spent nearly $4 billion this year on acquisitions alone. There were also reports of Salesforce trying to outbid Microsoft’s offer of $26 billion to purchase LinkedIn. Investors are concerned about the value of those acquisitions.
Another concern for the investors is the 27% y-o-y increase in the deferred (the amount it hopes to receive in the future) revenues. Even during the previous quarter, the company reported a 32% surge in the deferred revenues.

In the first half of September, Salesforce also lost HP’s multi-million dollar CRM (Customer Relationship Management) contract to Microsoft. The loss of the contract would certainly affect the top line of the company. Thus, Salesforce is expected to remain weak in the current quarter.

The loss of multi-million dollar contract triggered a sell-off that broke the major support at 77. The MACD indicator shows that the downtrend is far from complete. Thus, we can expect the share price to fall all the way down to 63.

Salesforce - Technical Analysis - 22nd September 2016

Based on that expectation, we recommend purchasing a one touch put option from a suitable binary broker. The strike price for the suggested put option should be 68 or higher. Likewise, the binary trader should only purchase the contract which expires in the second week of October.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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