Daily Brief: Strong Cloud Demand Helped Salesforce Smash Expectations, And It’s Not Too Late To Buy In...

Daily Brief: Strong Cloud Demand Helped Salesforce Smash Expectations, And It’s Not Too Late To Buy In...

almost 3 years ago3 mins

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Salesforce’s earnings punched past analysts’ expectations late last week, with demand for its cloud software looking as strong as ever.

What does this mean?

Companies around the world continue to clamor for cloud-based software solutions, even as many of the planet’s economies reopen in some shape or form. So much so, in fact, that cloud specialist Salesforce says its clients aren’t just the most optimistic they’ve been since the start of the pandemic right now – they’ve also restarted large-scale investment in software upgrades.

Many of the company’s clients expect at least some of their workers to remain remote indefinitely, with sales calls via teleconference also likely to continue being a thing. And that’s making Salesforce feel good about the future: it upped its sales estimates for the remainder of the year ahead of what analysts had penciled in. The company’s share price proved to be far from an immovable object as a result: investors sent Salesforce’s stock 6% higher on Friday.

Salesforce earnings

Why should I care?

The bigger picture: No cloud cuckoo land.

Cloud computing appears to be here to stay: the pandemic, after all, has forcibly removed any lingering reluctance companies had regarding the movement of mission-critical work online. Leading research firm Gartner now expects global cloud computing revenues to increase 23% this year. That’s up from its forecast of 18% growth just a few months back – and more than double the rate at which the industry expanded in 2020.

Gartner expects spending to grow

For markets: Salesforce on sale?

Despite the positive outlook and Friday’s bump, Salesforce’s stock still hasn’t risen as much as the broader US stock market this year. Analysts at investment bank Morgan Stanley reckon now’s a good time to buy in: the thinking is that a leading firm in a sector that’s expected to see consistently strong demand over the coming years won’t stay cheap for long.

Keep reading for our next story...

Costco's The Latest Retailer To Report Strong Results

Costco image

Membership-based discount retailer Costco became the latest big-box retailer to report strong quarterly results at the end of last week – but that’s hardly an exclusive society right now.

What does this mean?

It could be down to government stimulus checks or simply pent-up post-lockdown demand: either way, people are getting out and splashing their cash. Costco’s profit came in 16% ahead of analysts’ forecasts – the fifth time earnings have beaten estimates in the past six quarters. Still, that outperformance is nothing unusual: Walmart and Target also reported similarly strong results over the past couple of weeks. Investors’ expectations were therefore high – which may be why Costco’s share price actually fell on Friday.

Costco stock
Source: Google Finance

Why should I care?

For markets: Rising prices are a headache for retailers.

In spite of strong consumer demand, the rising prices of goods and services – i.e. inflation – is causing concern among retail analysts. As inflation increases, so too do costs for the likes of Costco. If a company can’t pass these on quickly enough to consumers via higher product prices, then the higher costs will eat into its profit margin. And seeing as margins for consumer retail companies are already razor-thin compared to most other industries, that could be the difference between making money and losing it.

The bigger picture: Discount retailers do well out of wealth inequality.

About half of all large US retail chain store opening announcements so far this year have come from discounters Dollar General and Dollar Tree (which also owns Family Dollar). This rapid expansion may be partly due to the country’s growing wealth inequality pushing more Americans towards cut-price shopping. But such stores are also better positioned to withstand ecommerce competition: discounters mostly sell food and daily essentials where delivery probably isn’t worth waiting for. Whatever the reason, more stores could translate into greater future profits for discount retailers.

Dollar stores dominate reopenings
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