Salesforce Reported A 'Monster' Q4, So Expect Softer Q1

Citi expects salesforce.com, inc. (NYSE: CRM) to report "seasonally softer" first-quarter results on May 18 after the company reported "monster" results for the fourth quarter, which took some businesses from the first quarter.

"Inputs suggest strong business activity for CRM in Q1, but in context of strong Q4 which likely pulled in some Q1 business. Transaction growth decelerated but remained a healthy +38 percent y/y vs. +55 percent in 4Q16," analyst Walter Pritchard wrote in a note.

Citi expects first-quarter earnings of $0.24 and operating margin of 14 percent, up $0.01/50 bps above the Street's expectations. The brokerage is slightly above the Street's view for total revenue at $1.90 billion versus $1.89 billion as well.

Citi projects first-quarter billings to grow 14 percent ($1.43 billion) at high-end of guide and expect typical (2–3pts) upside to this. The Street sees 17 percent growth ($1.46 billion) in billings.

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"While 1Q16 billings likely grow mid-teens percent y/y — a substantial deceleration from ~30 percent y/y in 4Q16, we remind investors this is due to magnitude of 4Q strength and more amplified seasonality," Pritchard noted.

The analyst recalled that salesforce.com, while reporting fourth quarter results, guided first quarter billings below the Street's projections, but first quarter deferred revenue outlook was above consensus, thus "combined Q4 + Q1 was well ahead of our original forecast."

In addition, Pritchard noted that he received positive feedback on momentum and expanding use cases for products outside of core campaign/email management (Journey Builder, Active Audiences etc.).

Pritchard maintains his Buy rating on the stock, saying, "CRM remains a top SaaS pick given ability to drive high growth and margin expansion at scale."

At the time of writing, shares of salesforce.com were down up 0.88 percent at $77.04. Pritchard has a price target of $87 on the stock.