More Room to Run for Salesforce, Increasing Fair Value

After transferring coverage of

The firm reported second-quarter 2019 earnings on Aug. 29. Salesforce's second-quarter revenue of $3.3 billion and diluted GAAP EPS of $0.39 per share sat at the upper end of our expectations. Our estimates for fiscal 2019 revenue are now $13.2 billion, targeting the high end of management's guidance range. We attribute shares selling off to muted third-quarter EPS guidance, but we were impressed with full-year targets.

MuleSoft and verticalization remained the story during the quarter. MuleSoft's Anypoint Integration Platform allows Salesforce to essentially become the glue behind the entire IT systems of major enterprises, while concurrently strengthening the interconnection between Salesforce's various clouds. Our fair value increase is largely based on greater expectations for MuleSoft's growth, which we model on a standalone basis. Second, we see vertical products, like Health Cloud, as crucial to the firm's long-term growth story.

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