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Salesforce Beats 3rd-Quarter Earnings and Revenue Estimates

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- By Mayank Marwah

Salesforce.com Inc. (NYSE:CRM) released its third-quarter fiscal 2021 results on Dec. 1 after the market closed.

The global leader in customer relationship management surpassed Wall Street's revenue expectations thanks to robust subscription revenue and support revenue growth. However, the company has issued soft quarterly earnings and revenue guidance.


Snapshot of the quarter

The business software company posted GAAP earnings per share of $1.15, up from a loss per share of 12 cents reported in the prior-year quarter. Analysts had predicted EPS of $0.75.

Revenue during the same period came to $5.42 billion, up 20% year-over-year. Wall Street had anticipated $5.25 billion in revenue. The company further broke down the numbers into a 20% growth in subscription and support revenue to $5.09 billion and a 22% growth for professional services and other revenue to $0.33 billion.

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

In the Sales Cloud division, sales surged 12% to $1.3 billion during the quarter. Similarly, sales in the Service Cloud segment inched up 21% to $1.4 billion. Revenue in the Platform and Other segment Cloud jumped 24% to $1.6 billion.

At quarter's end, the balance of cash, cash equivalents and marketable securities stood at a combined $9.49 billion.

Salesforce to acquire Slack

On Tuesday, Salesforce announced its plans to acquire workplace messaging app company Slack (NYSE:WORK) in a deal valued at $27.7 billion. If the deal materializes, it would be Salesforce's biggest acquisition ever. The company is using 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 fiscal fourth quarter, Salesforce is guiding for GAAP EPS between 73 and 74 cents per share, while sales are expected to be around $5.665 billion to $5.675 billion, reflecting a growth of 17%. Analysts are predicting EPS of $0.86 per share on $5.52 billion in revenue.

The company also issued guidance for fiscal 2022. The company said revenue is expected to be in the $25.45 billion to $25.55 billion; reflecting a roughly 21% annualized growth compared to fiscal year 2021. This is inclusive of the $0.6 billion contribution from Slack, assuming the deal would close in the late second quarter. Analysts are expecting revenue to be $24.50 billion.

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

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This article first appeared on GuruFocus.