It has been about a month since the last earnings report for Salesforce.com (CRM). Shares have added about 5.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
Salesforce Q4 Earnings and Revenues Beat Estimates
Salesforce reported better-than-expected financial results for the fourth quarter of fiscal 2023. The company’s fourth-quarter non-GAAP earnings doubled to $1.68 per share from the 84 cents reported in the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of $1.36.
The quarterly non-GAAP earnings included a loss of 25 cents per share from the mark-to-mark accounting of CRM’s strategic investments at a non-GAAP tax rate of 22%. However, the company’s ongoing restructuring initiative, which includes trimming the workforce, benefited fourth-quarter non-GAAP earnings by 9 cents per share.
Salesforce’s quarterly revenues of $8.38 billion climbed 14% year over year, surpassing the Zacks Consensus Estimate of $7.99 billion. The top line also improved 17% 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 fourth quarter.
Coming to CRM’s business segments, revenues from Subscription and Support (93% of the total revenues) increased 14.1% from the year-earlier period to $7.79 billion. Professional Services and Other (7% of total sales) revenues climbed 19.5% to $595 million.
Under the Subscription and Support segment, Sales Cloud revenues grew 13% year over year to $1.8 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, also improved 13% to $1.9 billion.
Marketing & Commerce Cloud revenues jumped 13% to $1.2 billion. Salesforce Platform and Other revenues were up 15% to $1.6 billion. Also, revenues from Data increased 18% year over year to $1.3 billion.
Geographically, Salesforce registered revenue growth of 14% in America (67.5% of the total revenues), 30% in the Asia Pacific (9.4%) and 20% in the EMEA (23.1%) on a year-over-year basis.
Salesforce’s gross profit came in at $6.28 billion, up 18.3% from the prior-year period. Moreover, the gross margin improved 200 basis points (bps) to 75%.
Salesforce recorded a non-GAAP operating income of $2.45 billion, up 123.3% from the year-ago quarter’s level of $1.1 billion. Moreover, the non-GAAP operating margin expanded 1,420 bps to 29.2% from 15% in the year-ago quarter due to lower operating expenses as a percentage of total sales. Operating expenses as a percentage of revenues declined to 71% from 75% in the year-ago quarter.
Salesforce exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of $12.5 billion, up from the $11.9 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $2.79 billion and free cash flow of $2.57 billion in the fourth quarter. In fiscal 2023, the company generated operating and free cash flows of $7.11 billion and $6.31 billion, respectively.
As of Jan 31, 2023, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $24.6 billion, up 12% on a year-over-year basis. In the fourth quarter and full fiscal 2023, the company bought back shares worth $2.32 billion and $4 billion, respectively.
Concurrent with its fourth-quarter results, Salesforce announces the expansion of its ongoing share repurchase program to $20 billion from the initial announcement of $10 billion made in 2022. With the total fiscal 2023 buyback of $4 billion, the company has now $16 billion remaining under its current authorization limit.
Strong Guidance for Q1 and FY24
Salesforce provided strong guidance for the first quarter and fiscal 2024. For the fiscal first quarter, Salesforce projects total sales between $8.16 billion and $8.18 billion (midpoint $8.17 billion).
The revenue guidance includes a $150-million negative impact of unfavorable currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $1.60-$1.61 for the current quarter.
For fiscal 2024, Salesforce forecasts revenues in the range of $34.5-$34.7 billion. The company expects no impact from foreign currency exchange rates.
The company projects fiscal 2024 non-GAAP earnings between $7.12 and $7.14 per share. Salesforce estimates a non-GAAP operating margin of approximately 27% for the fiscal and expects a year-over-year increase in operating cash flow in the 15 range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 61.49% due to these changes.
Currently, Salesforce.com has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Salesforce.com has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Salesforce.com is part of the Zacks Computer - Software industry. Over the past month, Autodesk (ADSK), a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended January 2023 more than a month ago.
Autodesk reported revenues of $1.32 billion in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $1.86 for the same period compares with $1.50 a year ago.
Autodesk is expected to post earnings of $1.55 per share for the current quarter, representing a year-over-year change of +8.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Autodesk. Also, the stock has a VGM Score of B.
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