EVENT: CRM reports fiscal Q earnings on Wednesday after the close, the options market is implying about a 6% one day move which is basically in line with the 4 qtr avg, but below the long term avg of about 7%.
Earlier today there was some put activity that caught my eye, when the stock was $62.90., 7500 of the March 57.50 puts were bought to open for 77 cents. These puts break-even at $56.73, down about 10%. There was also a closing seller of 2000 March 60 puts at 1.36 when the stock was 62.76.
A couple of weeks ago as the Russell 2000 looked poised to breakout. I took a look (read here) at other stocks like the Russell 2000 that have under-performed their large cap brethren that could also benefit from a broadening out of the rally. One such stock was Salesforce.com (CRM), which has basically traded between $55 and $65 for the better part of the last 9 months:
The stock is now up nearly 6% on the year, and approaching the upper end of the one year range. Despite the recent consolidation, the stock is just less than 10% from the all time highs made a year ago this week at $67:
CRM has been a fairly unique story given its early mover advantage in migrating everyday corporate software functions to a service in the cloud, that was massively disruptive to the dominant players like Microsoft in consumer and Oracle in the enterprise. The company has been growing sales at about 30%year for almost a decade, and in this fiscal year are expected to post $6.5 billion in sales. The stock ain’t cheap, trading 90x expected earnings and 6x sales, which is basically unheard of (excluding Amazon and maybe just a few others) for a $40 billion market cap company. The stock’s consolidation over the last year while the S&P500 has made a series of higher highs, demonstrates investor concern on valuation.
Aside from valuation its hard to knock the company, its products, its position, its continued ability to be disruptive and its brash CEO. But it seems that investors are bracing for a material slowdown in sales growth as it seems like every enterprise computing vendor is moving some parts of their businesses to the cloud that will compete on price with some of CRM’s offerings. I would also add that last spring MSFT and CRM announced a partnership to integrate some of their offerings, but this could be a sort of Trojan horse for MSFT to gain greater insight into the upstart’s core competencies. Or it could be a dry run for MSFT to get a look under the hood before they use some of their $90 billion in cash to make a trans-formative acquisition. I obviously have no clue what MSFT’s intent is, and I am merely speaking out-loud, but it does seem that its very near time for CRM to put up or shut up.
I will add one more observation. It was widely reported in the press (here) and on CEO Mark Benioff’s Twitter feed (here) that Metallica played at CRM’s employee “Kick Off” party, which sounds like a belated holiday party. I am hard-pressed to see the company have such a high profile event and then lay an egg on current quarter guidance… just saying.