2 Reasons Analysts Are Concerned Over Growth At Salesforce

Bernstein has two concerns regarding salesforce.com, inc. (NYSE: CRM) ahead of the company’s earnings announcement on November 17.

The firm retains its Underperform rating and price objective of $60, implying downside risks of more than 15 percent from current levels.

Risks Ahead Of Q3

Analyst Mark Moerdler is worried about the slowing growth, as that would impact the valuation. He thinks the focus will shift from revenue to earnings and believes margins will play a key role in shaping investor opinion on the stock in the long term. The second issue is that salesforce.com might be forced to spend more on acquisitions as an alternative to growth pace. However, this might prove to be tough for any meaningful accretion in value.

“We believe that growth is slowing for Salesforce.com and that competition is getting stronger as seen in last quarter's results. The company has turned back to acquisitions not simply to acquire IP, but to find new growth opportunities, which will be expensive and hurt margins due to lack of synergies and post-acquisition challenges,” the brokerage told its clients in a note.

Moerdler sees organic growth slowing down to 16.9–19.7 percent in the fourth quarter from an estimated 18.5–20 percent uptick in the third quarter, citing that the company spent about $5 billion in acquisitions.

At last check, the stock dipped 2.19 percent to $72.96.