It's $Salesforce.com(CRM)$ earning day, might be an opportunity for another wave of trading volume.
If you are a technical trader, CRM is now on a key position.
But for the earnings, it matters more.
Two key points to observe.
1. Step down of Rev growth rate(from 20%+ to single digit)
Market consensus revenue US $7.99 billion, YoY+9.2%, last 4 quarter average of 25%. Currency neutral YoY 12% mearns forex headwinds nearly 300bps. In the past quarter, the market expected the company to have 8 upward corrections and 28 downward corrections, which means they lowring down expectations.
I believe it could beat again, surprise may come from the exchange rate. According to the exchange rate changes of US dollar index in August-October and November-January, the gap between the revenue and growth rate of neutral exchange rate and the actual revenue growth rate may be smaller.
2. Cost-saving mode boosts profit margins
EPS consensus $1.37, YoY 63%. In the past quarter, 29 upward revisions and 4 downward revisions to EPS expectations. Market expenses and G&A expenses decrease would improve the profit margin. This is similar to most technology companies.
According to latest 13F in 22Q4, and the proportion of positions decreased by nearly 4%. The number of institutions that cleared and reduced positions increased, and the number of positions increased. Only the number of new positions increased.
Since 2023, CRM has risen 23%, outperforming the market, and this wave of market is different.
Now, there are a large number of active investors holding CRM, including Elliott Management, Point72 Asset Management, Third Point LLC and so on. The purpose of active investors might be controlling rights, and it is very likely that they will make plans for further infiltration into management and investment in mergers and acquisitions.
So, is this earning become a good trading opportunity?
Recent options IV said yes. IV of March 3rd (this week) is above 110%, and only about 60% in the week of March 10th.
Two possible trades,
1. Long volatility
You bet on big fluctuations. Straddle or Strangle are preferred.
For example, Straddles. According to the closing price of US $163.6 the previous day, Buy Call and Put with the exercise price of US $162.5 due on March 10. It is a straddle.
Break-even at maturity date are $177.35 and $147.65, but the break-even points one day after earnings date are $157.5 and $167.5.
2. Short volatility
You bet on less volatility. Reverse straddle and reverse strangle, butterfly or calendar are prefered.
For example, the reverse strangle strategies, Sells Call with an exercise price of US $160 due on March 10th and Sell Put with an exercise price of US $170,
Personally, I am optimistic on volatility, but the results of the earning (and the guidance) could really mean a lot to. Let's see how the institutions react to it.
Happy Trading!
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