Options Trade – salesforce.com, inc. (NYSE:CRM) Calls 
Sunday, February 23, 2014

**OPTIONS TRADE: Buy the CRM Apr 2014 70.000 call (CRM140419C00070000) at or under $1.55, good for the day. Place a protective stop limit at $0.65 and a pre-determined sell at $3.00.

by Ian Harvey

February 23, 2014

Introduction

salesforce.com, inc. (NYSE: CRM), a provider of enterprise cloud computing and social enterprise solutions, will report on Thursday, 27th February, before the market opens. It is expected to report a loss of 23 cents a share on revenue of $1.13 billion for the fourth quarter of fiscal year 2014, compared with a loss of 4 cents a share on revenue of $834.68 million in the year-ago period. Over the past 12 months, the stock has gained 45.1 percent. The company has a market capitalization of $38.26 billion.

At salesforce.com, the best-selling and top product for the company has long been the Salescloud. Moving forward, though, CRM is redefining its business, and it is believed that one new development is going to take CRM into the future. As we have seen with Facebook (FB) and Google (GOOG) before them, mobile and tablets are the way of the future for the tech world. CRM has built themselves up as a platform-as-a-service that combines software, infrastructure, and customer service into one product. Yet, as the world moves away from desktops and notebooks to phones and tablets, it is important that CRM be able to maintain its perch as the top customer service cloud company.

Salesforce1 is the platform for mobile that can link the CRM business across its sales cloud, service cloud, chatter, etc. It's nearly a platform within a platform, and it is believed that it reinvigorates the company.

Company Details

salesforce.com, inc. is a provider of enterprise cloud computing and social enterprise solutions. The Company provides a customer and collaboration relationship management (CRM), applications through the Internet or cloud. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology to deliver a variety of different services.

The Company delivers its service through Internet browsers and mobile devices. It markets its social enterprise applications and platforms to businesses on a subscription basis, primarily through its direct sales efforts and indirectly through partners.

In May 2013, salesForce.com Inc acquired Clipboard Inc. In July 2013, salesforce.com, Inc. completed its acquisition of ExactTarget Inc.

Key Statistics for CRM

Current P/E Ratio (ttm) -
Estimated P/E(01/2014) 187.5811
Relative P/E vs. SPX -
Earnings Per Share (USD) (ttm) -0.2450
Est. EPS (USD) (01/2014) 0.3390
Est. PEG Ratio 6.5922
Market Cap (M USD) 38,344.77
Shares Outstanding (M) 603.00
30 Day Average Volume 5,235,491
Price/Book (mrq) 13.0155
Price/Sale (ttm) 9.9986
Dividend Indicated Gross Yield -%
Cash Dividend -
Dividend Ex-Date
5 Year Dividend Growth -
Next Earnings Announcement 02/27/2014

Technical Analysis

Shares of salesforce.com, inc. opened at 63.01 on Friday. salesforce.com, inc. has a one year low of $36.09 and a one year high of $63.96. The stock’s 50-day moving average is $59.47 and its 200-day moving average is $53.26. The company’s market cap is $37.995 billion.

Earnings

salesforce.com inc. last issued its quarterly earnings data on Monday, November 18th. The company reported $0.09 earnings per share (EPS) for the quarter, meeting the consensus estimate of $0.09. The company had revenue of $1.08 billion for the quarter, compared to the consensus estimate of $1.06 billion.

During the same quarter in the previous year, the company posted $0.33 earnings per share. The company’s revenue for the quarter was up 36.5% on a year-over-year basis. On average, analysts predict that salesforce.com inc. will post $0.34 earnings per share for the current fiscal year.

Projections/Price Target

Revenue - The company has predicted around $4B-$4.1B in revenue for 2014. Revenue growth has been strong, and it is believed that it will remain that way. In constant currency in the latest quarter, Americas revenue grew 41%, Europe grew 39%, and Asia grew 17%. It is expected that CRM will be able to grow to $5.2B in 2015 as the company is just scratching the surface to their potential. From there, by using a conservative 22% CAGR growth rate through 2018 CRM should reach about $9.5B in revenue in 2018. Comps grow harder each year, thus the decline in CAGR. Yet, the company has about $6B of deferred revenues and revenues that are to be invoiced, giving a lot of confidence in their ability to grow revenues moving forward.

Margins - The company has had negative operating margins for the most part due to high SG&A mostly due to acquisitions and lots of spending to develop their business through R&D and hiring a lot of the best names in the business. Yet, it is believed that the company will start to see positive operating margins exist in 2015. On a non-GAAP basis, though, the company has been operating around a 9% operating margin. By using a GAAP rates in the model, it is expected that the company will see a flat operating margin this year before moving to around 4-5% margins before getting to the 8-10% range by 2016-2018. Stock-based compensation will fall as a % of sales over time as well as large SG&A upfront expenses.

Capital Expenditures - It is believed that these numbers will remain large around 6-7% for the next couple years as a part of revenue. The company is in a high-acquisition-based business that requires buying both vertically and horizontally to keep pace. Yet, the company may see some slow down as a percentage of sales as the rate of sales increases in comparison to CapEx. Taxes - Since 2008, the tax rate is around 30% to 40%, so we assume 32% over the next several years.

Shares Outstanding - The company has 603M shares outstanding.

Driving Forces of CRM

First and foremost is cloud technology. But utilizing the cloud to manage sales, marketing, and business initiatives is only part of the equation. Social media, mobile access, and incorporating big data analysis are all key components that IT gurus require of their CRM systems. And let's face it, some are better than others at delivering what the CRM market is demanding, and right at the top of that list is Salesforce.com .

You don't lead the market by standing still, and Salesforce.com certainly isn't. Mobile, which was once a weak point in Salesforce.com's arsenal, will, by most accounts, become another one of its strengths in the coming quarters and years. After failing in earlier attempts to make Salesforce.com compatible with mobile devices, its new Salesforce1 solution appears to be the answer. Unveiled late last year at its Dreamforce gathering, Salesforce1 is now integrated with iOS and Android mobile devices, and could be the mobile answer Salesforce.com has been searching for. It's still early, but it will be interesting to see how Salesforce.com's mobile ambitions fare on Feb. 27's earnings announcement.

Analysts Opinions

Equities research analysts at BMO Capital Markets upped their price target on shares of salesforce.com, inc. from $62.00 to $70.00 in a research note issued to investors on Friday, 21st February. BMO Capital Markets’ target price would indicate a potential upside of 11.09% from the stock’s previous close.

Also, salesforce.com has been the subject of a number of research reports:-

• Analysts at Bank of America reiterated a “positive” rating on shares of salesforce.com, inc. in a research note on Thursday.

• Separately, analysts at RBC Capital raised their price target on shares of salesforce.com, inc. from $66.00 to $70.00 in a research note on Friday, February 14th. They now have an “outperform” rating on the stock.

• Finally, analysts at Evercore Partners raised their price target on shares of salesforce.com, inc. from $63.00 to $70.00 in a research note on Thursday, February 13th.

Two equities research analysts have rated the stock with a sell rating, seven have issued a hold rating, twenty-eight have given a buy rating and two have given a strong buy rating to the stock. The stock has an average rating of “Buy” and an average target price of $81.18.

Conclusion

At just under $38 billion in market capitalization, Salesforce.com is just a blip on the radar compared to Oracle and Microsoft. But when it comes to the exploding CRM market, Salesforce.com stacks up against anyone and everyone. If the forecasst for the future of CRM is even close to being right, there's room for all the players in the game to continue growing. But it will be Saleforce.com that leads the way, just as it always has.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the CRM Apr 2014 70.000 call (CRM140419C00070000) at or under $1.55, good for the day. Place a protective stop limit at $0.65 and a pre-determined sell at $3.00.



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Options traders win because they are successful.



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