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salesforce (CRM) Q1 Earnings and Revenues Surpass Estimates

Zacks Equity Research

salesforce.com Inc. CRM delivered impressive first-quarter fiscal 2020 non-GAAP earnings of 93 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 61 cents and improving from the year-ago quarter’s figure of 74 cents.

Management mentioned that mark-to-market adjustments of the company’s strategic investments boosted earnings by 27 cents per share.

Revenues of $3.74 billion increased 24% year over year and surpassed the Zacks Consensus Estimate of $3.68 billion. Moreover, the top line improved 26% at constant currency (cc).

The company is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of the company’s cloud-based solutions led to better-than-expected results. Moreover, the acquisition of Mulesoft contributed $170 million to revenues in the first quarter. However, unfavorable foreign exchange volatility remains an overhang.

Quarter in Detail

Coming to the company’s business segments, revenues at Subscription and Support rose (94% of total revenues) about 24% from the year-earlier period to $3.5 billion. Professional Services and Other revenues (6%) climbed 23% to $241 million.

Sales Cloud revenues ascended 11% year over year to $1.07 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, increased 20% to $1.02 billion. Marketing & Commerce Cloud revenues surged 33% to $561 million.

salesforce’s Platform and Other revenues soared 46% to $842 million, which includes Mulesoft’s subscription and support revenues of $140 million.

Geographically, the company witnessed revenue growth of 25% in the Americas (70% of total revenues), 27% in Asia Pacific (10%) and 32% in Europe (20%), on a year-over-year basis.

salesforce.com, inc. Price, Consensus and EPS Surprise

salesforce.com, inc. Price, Consensus and EPS Surprise

salesforce.com, inc. price-consensus-eps-surprise-chart | salesforce.com, inc. Quote

Operating Details

salesforce’s non-GAAP gross profit came in at $2.93 billion, up 26.8% from the prior-year quarter. Gross margin expanded 140 basis points (bps) to 78.3%.

Non-GAAP operating expenses escalated 24.7% year over year to $2.24 billion. As a percentage of revenues, operating expenses rose 30 bps to 60.2%.

salesforce posted non-GAAP operating income of $682 million, up 33% year over year.  Operating margin expanded 122 bps to 18.2%

Balance Sheet & Cash Flow

salesforce exited the reported quarter with cash, cash equivalents and marketable securities of $6.38 billion compared with $4.34 billion in the prior quarter.

As of Apr 30, 2019, total unearned revenues were $7.6 billion, up 22% on a year-over-year basis.

salesforce generated operating cash flow of $1.97 billion and free cash flow of $1.81 billion.

Guidance

For fiscal 2020, revenues are predicted between $16.1 billion and $16.25 billion, marking 21-22% growth year over year. The company expects Salesforce.org to contribute approximately $150-$200 million in revenues in fiscal 2020.

However, strengthening of U.S. dollar relatively to GBP and the euro is likely to keep revenues as well as operating margins under pressure. The company anticipates more than $200 million of foreign exchange headwinds in the full fiscal.

However, the company raised its full-year earnings per share guidance to the range of $2.88-$2.90 per share from $2.54-$2.56 envisioned earlier. The Zacks Consensus Estimate stands at $2.64.

Operating cash flow is still forecast to increase 20-21% year over year.

Coming to fiscal second quarter, Salesforce.org is likely to generate approximately $40 million to $50 million revenues. Revenues are guided between $3.94 billion and $3.95 billion. The Zacks Consensus Estimate is currently pegged at $3.93 billion.

However, non-GAAP diluted earnings per share are anticipated in the range of 46-47 cents for the fiscal second quarter, below the current Zacks Consensus Estimate of 63 cents. Transaction expenses associated with the consolidation of Salesforce.org is an overhang.

Zacks Rank & Stocks to Consider

salesforce currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are eGain Corporation EGAN, Rosetta Stone RST and j2 Global, Inc. JCOM, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for eGain, Rosetta Stone and j2 Global is currently projected at 30%, 12.5% and 8%, respectively.

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