What To Watch In Salesforce's Earnings Report

Salesforce (CRM) is scheduled to report results of its third fiscal quarter after the market close on Tuesday, December 1, with a conference call scheduled for 5:00 pm ET. What to watch for:

1. GUIDANCE: Along with its second-quarter earnings report, Salesforce raised its fiscal year 2021 adjusted earnings per share view to $3.72-$3.74 from $2.93-$2.95. Consensus for earnings, which was $2.96 at the time, has since jumped to $3.75. The company also raised its 2021 revenue view to $20.7B-$20.8B from approximately $20B. Consensus, which was $20.07B at the time, has increased to $20.8B. In addition, the company provided third-quarter adjusted EPS guidance of 73c-74c on revenue of $5.24B-$5.25B. Consensus for earnings, which was at 76c at the time, has dropped slightly to 75c, and consensus for revenue, which was at $5.01B, has risen to $5.25B.

2. PARTNERSHIPS: In August, Salesforce announced a strategic relationship with CVS Health (CVS) to allow customers to use their COVID-19 return to work and campus solutions together. In September, the company announced a multi-year agreement with Humana (HUM) for Salesforce Health Cloud. In October, Salesforce and Okta (OKTA) announced a partnership and integration between the Okta Identity Cloud and Salesforce Work.com.

3. POTENTIAL SLACK ACQUISTION: On Wednesday, the Wall Street Journal reported that Salesforce had held recent talks to acquire Slack Technologies (WORK) and any deal would likely value Slack at more than its $17B market capitalization. Following the news, Goldman Sachs analyst Heather Bellini said she believes such a potential deal "may have strategic merit given the heightened competitive landscape," particularly as Microsoft (MSFT) drives increased Teams adoption. If a deal were to occur, she would expect Salesforce to leverage both cash and stock or all stock, added the analyst, who maintained a Buy rating and $275 price target on Salesforce shares. Meanwhile, Morgan Stanley analyst Keith Weiss said such a deal could "potentially quickly fill a hole in Salesforce's product portfolio" and give it a best-of-breed collaboration tool with a sizable user base. However, large deals "fuel the bear case" on Salesforce's organic growth potential, and a deal for Slack near current levels would likely be dilutive to margins and free cash flow per share for Salesforce, Weiss said, keeping an Equal Weight rating on Salesforce shares. CNBC reported on Monday that the deal would be announced Tuesday after the close and the price will be a premium to Slack's current share price.

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