(CRM) Preview: Expect Beat and Raise Q1, But Stock Treads Water From Here

Citi’s Brent Thill predicts red-hot (CRM) will beat Q1 consensus and raise guidance, but after a 38% run in the stock over the past three months, he sees no further near-term upside. No catalysts, weak seasonality.

Conference call Wednesday, May 21, 2008 @ 2:00pm PST / 5:00pm EST. Webcast here.

Expect FQ1 Upside — FQ1 (Apr.) revs likely to beat our $235.3M est., Street’s $235.8M, and guidance $233-235M. In last 4 qtrs, CRM beat hi-end of guidance by a spread of $3.6-8.9M. Gaap EPS likely to beat our/Street’s $0.07 est. & guidance $0.06-0.07. As op mgn has broken out in last 3 qtrs, CRM has shown consistent upside to EPS. We’re modelling FQ1 PF op mgn 11.7% (+420bp y/y, – 40bp q/q). Co. could raise FY09 rev guidance range by $5-10M.

Fundamental Thesis Unchanged — CRM’s leadership in transitioning the industry to an Internet-centric software architecture is firmly established. Even at a size nearing $1Bn in annual revs, CRM is growing 40%+ y/y, int’l adoption is ramping (Europe +69% in FY08; Misys to add 55K portal users to 2,500 employee users), and scale is driving signif. mgn expansion (guid. +300bp in FY09). FQ1 should benefit from FQ4’s record bookings qtr (def revs +69% y/y).

CRM stock up 38% since 2/6
— This compares to NASDAQ Comp.’s 10% gain.
Stock has underperformed in May-July period in last 2 yrs (-7% in ’07, -27% in ’06) as sequential revenue growth typically slows in FQ2. Combined with the lack of notable catalysts over next few months, stock could languish near-term.

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