It has been about a month since the last earnings report for Salesforce.com (CRM). Shares have added about 1.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Salesforce.com due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Salesforce Q1 Earnings and Revenues Top Estimates
Salesforce delivered better-than-expected results for first-quarter fiscal 2021. The company’s fiscal first-quarter non-GAAP earnings of 70 cents per share beat the Zacks Consensus Estimate by a penny. Nonetheless, quarterly earnings declined 25% from the year-ago quarter’s 93 cents, as benefits of higher revenues were more than offset by elevated operating expenses.
Salesforce’s fiscal first-quarter revenues of $4.87 billion jumped 30% year over year, surpassing the Zacks Consensus Estimate of $4.85 billion. Moreover, the top-line figure improved 31% in constant currency (cc). The company also noted that the Tableau acquisition in August 2019 contributed $273 million to its quarterly revenues.
The enterprise cloud computing solutions provider has been benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions led to the better-than-expected performance during the fiscal first quarter.
Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support increased about 31% from the year-earlier period to $4.58 billion. Professional Services and Other revenues climbed 20% to $290 million.
Sales Cloud revenues grew 16%, year over year, to $1.2 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 23% to $1.3 billion. Moreover, Marketing & Commerce Cloud revenues jumped 27% to $700 million. Salesforce Platform and Other revenues surged 62% to $1.4 billion.
Geographically, the company registered revenue growth of 29% in the Americas (69% of total revenues), 26% in the Asia Pacific (10%), and 37% in Europe and Middle East Asia or EMEA (21%) on a year-over-year basis.
Salesforce’s non-GAAP gross profit came in at $3.82 billion, up 31% from the prior-year quarter. Additionally, gross margin expanded 30 basis points (bps) to 78.6%.
Salesforce posted non-GAAP operating income of $635 million, down 7% year on year. Operating margin shrunk 510 bps to 13.1% due to elevated operating expenses as a percentage of revenues. Operating expenses flared up 42% year over year to $3.19 billion. As a percentage of revenues, operating expenses expanded 540 bps to 65.5% from the year-ago period’s 60.1%.
Salesforce exited the fiscal first quarter with cash, cash equivalents and marketable securities of $9.8 billion compared with the $7.9 billion recorded at the end of previous quarter. The company generated operating cash flow of $1.86 billion in the fiscal first quarter.
As of Apr 30, 2020, total unearned revenues were $9.11 billion, up 20% on a year-over-year basis.
Assuming the coronavirus pandemic to keep impacting its business, Salesforce has updated the fiscal 2021 guidance. For the fiscal year, the company now predicts revenues to grow 17% year over year to $20 billion compared with the prior estimate of $21-$21.1 billion.
The company expects full-fiscal non-GAAP earnings per share to come in at $2.93-$2.95, down from the earlier expectation of $3.16-$3.18.
Operating cash flow is expected to increase between 10% and 11%, down from the previous guidance of a 20% year-over-year increase.
Coming to the fiscal second quarter, revenues are guided between $4.89 billion and $4.90 billion, calling for 22-23% growth from the prior-year reported number. Furthermore, Salesforce anticipates non-GAAP earnings per share in the band of 66-67 cents for the fiscal second quarter.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -29.41% due to these changes.
At this time, Salesforce.com has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Salesforce.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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