The wide-moat company continues to make headway on several initiatives, including investment in industry-specific products and growing its international business.
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's second-quarter results came in ahead of both our and the Street’s expectations, extending the firm’s run of exceeding both its internal guidance and consensus estimates. The company continues to make headway on several initiatives, including investment in industry-specific products and growing its international business. The firm also achieved a $10 billion annual revenue run rate for the first time in the quarter, and management remains focused on once again doubling the company’s top line over the next several years. We are maintaining our wide moat rating.
Rodney Nelson is a senior equity analyst for Morningstar.
After incorporating management’s updated guidance and accounting for the time value of money, we are raising our fair value estimate to $109 per share, up from $103 previously, though shares remain in three-star territory.
Second-quarter revenue rose 26% versus the prior-year period to $2.6 billion, driven by across-the-board strength in each of the firm’s primary cloud segments. Sales Cloud’s resurgence continues to outstrip our expectations, as sales rose 17% year over year and contributed 37% of subscription revenue in the quarter. We believe this is the strongest reflection of the firm’s efforts to verticalize its product portfolio, and management echoed this sentiment by calling out numerous wins in the financial services and healthcare industries, two verticals where Salesforce has introduced industry-specific products.
On the integration front, we are encouraged to see Demandware and Krux fueling growth for the Marketing Cloud segment, which grew 57% versus the year-ago period (36% organically). When Salesforce announced the Demandware acquisition, we speculated this offering could unlock new opportunities in the B2C realm, and it appears this theme is beginning to play out. Management called out numerous consumer and retail wins (particularly in Europe) that signal strong demand for the firm’s marketing and e-commerce offerings.
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