Wednesday, December 2, 2020

Salesforce.com Shares Ease Despite Upbeat Q3

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News shaping
the markets today

     

What’s happening: Shares of Salesforce.com headed south in extended trading on Tuesday despite the San Francisco, California-based company reporting stronger-than-expected results for its third quarter.

What happened: The CRM giant not only reported upbeat quarterly results, but also announced its biggest acquisition till date on Tuesday.

The multibillion transaction to buy Slack Technologies will take the already-intense competition between Salesforce and Microsoft to new heights.

How were the results: The cloud-based software company swung to a profit in the third quarter, with both sales and earnings exceeding expectations.

  • Revenue grew 20% to $5.42 billion, beating the consensus view of $5.25 billion.
  • Net income of $1.08 billion, or $1.15 per share, marked great progress from the year-ago loss of $109 million, or 12 cents per share.
  • Adjusted earnings came in at $1.74 per share, surpassing the consensus estimate of 75 cents per share.

Why it matters: Salesforce has been on an acquisition spree, announcing big deals over the past couple of years. The company acquired MuleSoft for $6.5 billion in 2018 and paid $15.3 billion to acquire Tableau in 2019.

Speculations of Salesforce looking to acquire Slack Technologies had emerged last week, sending Slack’s shares surging. Salesforce announced on Tuesday that it had reached an agreement to acquire the workplace chat app for $27.7 billion in a cash and stock deal. The acquisition of Slack, which went public only last year, is expected to close in July 2021, provided it receives the necessary shareholder and regulatory approvals.

Slack has been facing intense pressure from Microsoft’s Teams messaging service, especially after the pandemic. Meanwhile, Salesforce competes with Microsoft's Dynamics segment in the CRM (customer relationship management) market.

Salesforce also announced that CFO Mark Hawkins will retire in January and named its President and Chief Legal Officer Amy Weaver as the successor effective February 1.

Management projected Q4 revenues between $5.665 billion and $5.675 billion, ahead of market expectations of $5.51 billion. The company also guided to earnings between 73 to 74 cents per share, which was disappointing as it fell short of the Street’s estimate of 86 cents per share for the quarter.

How shares responded: Salesforce’s shares plummeted 4.8% to $229.75 in after-hours trading. Shares of Microsoft also slipped by 0.3% to $215.58, on concerns over intensifying competition from Salesforce.

What to watch: Investors will monitor the approvals for the smooth closing of Salesforce’s purchase of Slack. Markets will also keep an eye on the intense competition between Microsoft and Salesforce.

The Markets Today

     

European stocks will be in focus today ahead of a basket of economic reports from the region.

Context: European stocks started the first day of December on a positive note after recording sharp gains in the previous month.

Details: European markets notched record gains during November despite closing lower on the last day of the month. European stocks followed the strong momentum in their Asia-Pacific counterparts yesterday, with Wall Street also clocking strong gains in the previous session.

Markets were buoyed by news of Pfizer and its German partner BioNTech applying for conditional marketing authorisation to the EMA (European Medicines Agency) for their covid-19 vaccine. If approved, immunisations could commence in Europe this month.

The OECD (Organization for Economic Cooperation and Development) raised its global economic growth projections. The group expects real GDP growth to reach pre-covid-19 levels by the end of next year.

On the economic data front, inflation in the Eurozone remained in the negative zone for the fourth successive month in November. However, manufacturing PMI for the region was revised higher to 53.8 in November, from a preliminary reading of 53.6.

The pan-European Stoxx 600 index closed higher by 0.8%, with basic resources leading the rally, adding around 3.5% in Tuesday’s session. Almost all sectors moved higher, although healthcare stocks bucked the trend to shed 0.2%.

London’s FTSE 100 gained 1.89%, while Germany’s DAX 30 index and French 40 moved higher by 0.69% and 1.14%, respectively.

What to watch: Markets await data on unemployment rate and producer prices from the Eurozone. The unemployment rate is expected to increase to 8.4% in October, from 8.3% in September. Industrial producer prices are likely to rise 0.2% in October.

Covid-19 remains a major concern for investors, with total cases worldwide surpassing 63.7 million.

Other Markets: US indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.63%, 1.13% and 1.28%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany's retail sales, Spain’s unemployment change and tourist arrivals, Italy's unemployment rate, Brazil's industrial production, Canada’s labour productivity as well as the US MBA mortgage applications, ADP employment change, ISM New York current business conditions index, EIA’s crude oil inventories and Fed’s Beige Book report.