Salesforce: Don't Call It A Comeback, Microsoft May Be Pressuring Mid-Market

Driven by strength in enterprise business, salesforce.com, inc. (NYSE: CRM) delivered a solid third-quarter beat. However, Jefferies analyst John DiFucci pointed out continued moderation in the mid-market, which was somewhat soft for the third straight quarter.

Salesforce didn’t mention it in the call as enterprise business, especially in the United States, saw a record quarter for seven-figure deals that more than offset the mid-market softness. But, DiFucci wonders if competitive pressure in the mid-market from Microsoft Corporation (NASDAQ: MSFT) is an issue.

Microsoft Concerns

“[W]e continue to hear of increased competitive pressure in the mid-market from Microsoft who now has a product that appears ‘good enough’ and is much cheaper than salesforce.com. It’s logical that this would have a greater impact in the mid-market, which tends to be more price-sensitive,” DiFucci wrote in a note.

The company reported billings growth of 19 percent, handily topping consensus view of 13 percent, and the implied fourth quarter billings growth guidance of 24 percent also came in above consensus estimate of 21 percent.

DiFucci, who has a Hold rating on salesforce, says the company’s preliminary fiscal 2018 revenue guidance of $10.100 billion to $10.150 billion (21 percent growth) implies that new business has to grow at least in the low teens. The analyst projects 14 percent new business growth in order to hit revenue near the midpoint of guidance.

At last check, shares of salesforce rose 3.98 percent to $78.18. DiFucci has a price target of $80.

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