Jefferies Looking For Clarity On Salesforce's 'Weak' Quarter

Jefferies is looking for clarity on salesforce.com, inc. (NYSE: CRM)'s weak second-quarter results while maintaining its Hold rating $80 price target.

Quarterly billings grew 15 percent to $1.853 billion, while the Street expected 17 percent growth. Similarly, deferred revenue grew 26 percent (versus guidance of +26 percent–28 percent), also below the Street's 28 percent estimate.

"Mgmt blamed weakness in the US at the end of the Q, though we believe new business growth in Europe also slowed, but was better than the US. Clear reasons were not given; we wonder if a subsequent operational review will resolve any issues," analyst John DiFucci wrote in a note.

Related Link: Oppenheimer Says Salesforce's Q2 Just A Transitory Quarter, Not A Harbinger Of Doom

The real question here is what caused the deal slippage at the end of the quarter and there was no clear explanation for the weakness — or at least little confidence in what caused it, according to the analyst.

Why The Slip?

The analyst's field checks suggest macro weakness, M&A impacts, market saturation, competition — especially from Microsoft Corporation (NASDAQ: MSFT) — and pricing.

DiFucci noted the new subscription ACV declined 3 percent in the second quarter after a comfortable double digit growth in each of the last four quarters.

Meanwhile, the company's third-quarter guidance calls for revenue of $2.110 billion–$2.120 billion, non-GAAP EPS of $0.20–$0.21 and deferred revenue growth of 20 percent. The Street consensus estimate for EPS/revenue stands at $0.24/$2.12 billion.

"It implies our calculation for New Sub ACV declines 28 percent from a year ago, which even after this disappointing quarter is not likely," the analyst continued.

For the year, revenue is projected to be $8.275 billion–$8.325 billion (+24–25 percent year-over-year), up from the previous guide of $8.260 billion–$8.320 billion. Non-GAAP EPS guidance remained unchanged at $0.93–$0.95. Wall Street, on average, expects earnings of $0.95 a share on revenue of $8.31 billion.

At time of writing, shares of salesforce had fallen 5.06 percent on the day to $75.40.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!