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Salesforce Beats 1st-Quarter Earnings and Revenue Projections

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- By Mayank Marwah

Salesforce.com Inc. (NYSE:CRM) released its first-quarter fiscal 2022 results on May 27 after the market closed.

The global leader in customer relationship management software surpassed Wall Street's revenue expectations thanks to robust subscription and support revenue growth. In addition, the company has posted strong quarterly earnings and revenue guidance, surpassing analysts' expectations.

Snapshot of the quarter

The business software company posted adjusted earnings per share of $1.21, up from EPS of 70 cents reported in the prior-year quarter. Analysts had predicted EPS of $0.88.

Revenue during the same period came to $5.96 billion, up 23% year-over-year. Wall Street had anticipated $5.89 billion in revenue.

The company further broke down the numbers into a 21% growth in subscription and support revenue to $5.54 billion and a 47% growth for professional services and other revenue to $0.43 billion.

The high revenue also includes contribution from Tableau, a data visualization software acquired by Salesforce in August 2019 for $15.7 billion.

In the Sales Cloud division, sales surged 11% to $1.39 billion during the quarter. Similarly, sales in the Service Cloud segment were up 20% to $1.5 billion. Revenue in the Platform and Other segment jumped 28% to $1.7 billion.

At quarter's end, the balance of cash, cash equivalents and marketable securities stood at a combined $15.02 billion.

Salesforce to acquire Slack

In December 2020, Salesforce announced it intends to acquire workplace messaging app company Slack (NYSE:WORK) in a deal valued at $27.7 billion. If the deal goes through, it would be Salesforce's biggest acquisition ever.

The company said it would use a combination of cash and stock to buy Slack. Under the terms of the contract, Slack shareholders "will receive $26.79 in cash and 0.0776 shares of Salesforce common stock for each Slack share, representing an enterprise value of approximately $27.7 billion based on the closing price of Salesforce's common stock on November 30, 2020."

Salesforce has been witnessing heightened demand for its online business software that supports remote working and is among the "big winners" from the disruption caused by the Coronavirus pandemic. Once the deal is sealed, the company would be able to provide businesses a cohesive platform to bring together their employees, customers and partners as well as their apps.

The deal would also intensify Salesforce's enduring rivalry with major cloud service provider Microsoft (NASDAQ:MSFT) in the business and cloud applications market. According to Wedbush analyst Daniel Ives:

"For Microsoft this would competitively change the landscape and make Salesforce even that much more of a competitor (Dynamics vs. CRM) in the field as these two stalwarts further compete in the trillion dollar cloud opportunity over the next decade."

Financial forecast

For the second quarter of fiscal 2022, Salesforce is guiding for Non-GAAP EPS between 91 and 92 cents per share, while sales are expected to be around $6.22 billion to $6.23 billion, reflecting a growth of 21%. Analysts are predicting EPS of $0.86 per share on $6.15 billion in revenue.

The company also issued guidance for full fiscal 2022. Adjusted earnings per share are projected to fall in the $3.79 to $3.81 range. The company said revenue is expected to be $25.9 billion to $26.0 billion, reflecting a roughly 22% annualized growth compared to fiscal year 2021. This is inclusive of the $0.5 billion contribution from Slack, assuming the deal will close in the late second quarter. Analysts are expecting earnings to be $3.43, while revenue is expected to be around $25.76 billion.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.