Salesforce (CRM) Jumps 9% on Q1 Earnings Beat, Guidance Raise

Salesforce CRM stock gained 9.2% in Tuesday’s extended trading session after the enterprise cloud computing solutions provider delivered better-than-expected first-quarter results and raised the profit forecast for fiscal 2023.

Salesforce’s first-quarter fiscal 2023 non-GAAP earnings of 98 cents per share beat the Zacks Consensus Estimate of 93 cents. Quarterly earnings included a benefit of a penny per share from the mark-to-mark accounting of CRM’s strategic investments at a non-GAAP tax rate of 22%. However, non-GAAP earnings declined 19% from the year-ago quarter’s earnings of $1.21 per share.

Salesforce’s quarterly revenues of $7.41 billion climbed 24% year over year, surpassing the Zacks Consensus Estimate of $7.37 billion. The top line also improved 26% in constant currency (cc).

The company has been benefiting from the robust demand environment as customers are undergoing a major digital transformation. Thus, the rapid adoption of its cloud-based solutions resulted in the better-than-anticipated performance in the fiscal first quarter. Also, the recently acquired Slack business boosted revenues and contributed $348 million to total sales in the first quarter.

Salesforce Inc. Price, Consensus and EPS Surprise

 

Salesforce Inc. price-consensus-eps-surprise-chart | Salesforce Inc. Quote

Quarter in Detail

Coming to CRM’s business segments, revenues from Subscription and Support (93% of total revenues) increased 24% from the year-earlier period to $5.54 billion. Professional Services and Other (7% of total sales) revenues climbed 30% to $555 million.

Under the Subscription and Support segment, Sales Cloud revenues grew 18% year over year to $1.6 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 17% to $1.8 billion. Marketing & Commerce Cloud revenues jumped 22% to $1.1 billion. Salesforce Platform and Other revenues were up 55% to $1.4 billion. Also, revenues from Data increased 15% year over year to $1 billion.

Geographically, Salesforce registered revenue growth at cc of 21% in America (67% of total revenues), 32% in the Asia Pacific (10%) and 39% in the EMEA (23%) on a year-over-year basis.

Salesforce’s gross profit came in at $5.37 billion, up 22% from the prior-year period. However, the gross margin contracted 200 basis points (bps) to 72%.

Salesforce recorded a non-GAAP operating income of $1.31 billion, up 8% year over year. However, the non-GAAP operating margin contracted 260 bps to 17.6% due to the lower gross margin and increased operating expenses. Operating expenses flared up 32% year over year to $5.35 billion.

Salesforce exited the fiscal first quarter with cash, cash equivalents and marketable securities of $13.5 billion compared with the $10.5 billion recorded at the end of the previous quarter. CRM generated operating cash flow of $3.68 billion and free cash flow of $3.5 billion in the first quarter.

As of Apr 30, 2022, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $21.5 billion, up 21% on a year-over-year basis.

Guidance Update

Buoyed by the stronger-than-expected bottom line in the first quarter, Salesforce raised its profit forecast for full fiscal 2023.

For fiscal 2023, the company increased its non-GAAP earnings guidance range to the $4.74-$4.76 per share range from the $4.62-$4.64 band projected earlier. It now anticipates the non-GAAP operating margin for the fiscal year of approximately 20.4% instead of around 20%. The company reiterated its year-over-year operating cash flow growth guidance of 21-22%.

However, CRM lowered its revenue guidance range to the $31.7-$31.8 billion range from the $32-$32.1 billion band due to forex headwinds. The company forecast that the stronger U.S. dollar against other major currencies would have a $600-million negative impact on total revenues. The updated guidance includes expected revenues from the newly acquired Slack business of $1.5 billion.

On its fourth-quarter fiscal 2022 earnings conference call, Salesforce anticipated that the Traction on Demand business acquisition would contribute approximately $75 million to its fiscal 2023 total revenues.

For the fiscal second quarter, Salesforce projects total sales between $7.69 billion and $7.70 billion. The revenue guidance includes a $200-million negative impact of unfavorable currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $1.01-$1.02 for the current quarter.

Zacks Rank & Key Picks

Currently, Salesforce carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the broader technology sector are ON Semiconductor ON, Analog Devices ADI and MaxLinear MXL. While ON and Analog Devices each currently sport a Zacks Rank #1 (Strong Buy), MaxLinear carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ON's second-quarter 2022 earnings has been revised to $1.26 per share from $1.05 over the past 30 days. For 2022, earnings estimates have moved north by 17.5% to $4.91 per share in the past 30 days.

ON's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 2.8%. Shares of ON have rallied 52.1% in the past year.

The Zacks Consensus Estimate for Analog Devices' third-quarter fiscal 2022 earnings has been revised upward by 24 cents to $2.42 per share over the past 30 days. For fiscal 2022, earnings estimates have moved north by 9.6% to $9.24 per share in the past 30 days.

Analog Devices' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 7.7%. Shares of ADI have increased 2.9% in the past year.

The Zacks Consensus Estimate for MaxLinear's second-quarter 2022 earnings has been revised upward by 10 cents to 83 cents per share over the past 60 days. For 2022, the Zacks Consensus Estimate for MaxLinear's earnings has moved north by 35 cents to $3.29 per share in the past 60 days.

MaxLinear's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 9.6%. Shares of MXL have increased 2.8% in the past year.

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