Yahoo Finance Why Is Salesforce.com (CRM) Up 16% Since Last Earnings Report?
It has been about a month since the last earnings report for Salesforce.com (CRM). Shares have added about 16% 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 catalysts.
Salesforce Beat on Q1 Earnings, Guidance Weak
Salesforce reported mixed first-quarter fiscal 2025 results, wherein non-GAAP earnings surpassed the Zacks Consensus Estimate, but revenues fell short of the same.
The enterprise cloud computing solution provider’s first-quarter non-GAAP earnings increased 44% to $2.44 per share from $1.69 in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.38. The robust year-over-year growth was mainly driven by higher sales and the benefits of ongoing cost-restructuring initiatives, which include the trimming of the workforce and a reduction in office spaces.
Salesforce’s quarterly revenues of $9.13 billion climbed 11% year over year. The top line also improved 11% at constant currency. However, quarterly revenues marginally fell short of the Zacks Consensus Estimate of $9.14 billion.
CRM has been benefiting from resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment. The first-quarter top-line performance also reflected the benefits of its go-to-market strategy and sustained focus on customer success.
Additionally, the company’s initiative to integrate artificial intelligence into its offerings, like Slack and the launch of a generative AI-enabled Einstein GPT product, also boosted demand for its solutions during the reported quarter.
Quarterly Details
Coming to CRM’s business segments, revenues from Subscription and Support (94% of total revenues) increased 12.3% year over year to $8.59 billion. However, Professional Services and Other (6% of total sales) revenues decreased 9.4% to $548 million. Our estimates for the Subscription and Support, and Professional Services and Other segments’ revenues were pegged at $8.52 billion and $609.4 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 10.4% year over year to $2 billion. Revenues from Service Cloud also improved 11.1% to $2.18 billion.
Marketing & Commerce Cloud revenues increased 9.6% to $1.28 billion. Platform & Other revenues were up 9.6% to $1.72 billion. The company has renamed the Data sub-segment to the Integration and Analytics division. Revenues from the Integration and Analytics division increased 24.2% year over year to $1.41 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Integration & Analytics services revenues were pegged at $2 billion, $2.18 billion, $1.27 billion, $1.73 billion and $1.34 billion, respectively.
Geographically, revenues from America (66% of total revenues) grew 10.6% year over year to $6.06 billion. Sales in the EMEA (23%) increased 9.9% to $2.15 billion, while the Asia Pacific (11%) region’s revenues soared 13.8% to $926 million.
Salesforce’s non-GAAP gross profit came in at $7.33 billion, up 13.2% year over year. Moreover, the gross margin improved 170 basis points (bps) to 80.2%.
It recorded a non-GAAP operating income of $2.93 billion, up 28.8% from the year-ago quarter’s $2.27 billion. Moreover, the non-GAAP operating margin expanded 450 bps to 32.1%, primarily due to an improvement in the gross margin and benefits from cost restructuring initiatives, including the trimming of the workforce and a reduction in office spaces.
Balance Sheet & Other Details
Salesforce exited the fiscal first quarter with cash, cash equivalents and marketable securities of $17.7 billion, up from $14.2 billion at the end of the previous quarter. CRM generated operating cash flow of $6.25 billion and free cash flow of $6.08 billion in the first quarter.
As of Apr 30, 2024, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $26.4 billion, up 10% on a year-over-year basis. The company bought back shares worth $2.13 billion and paid $388 million in dividends during the first quarter.
Guidance Update
Salesforce provided guidance for the second quarter of fiscal 2025. For the fiscal second quarter, it projects total sales between $9.20 billion and $9.25 billion (midpoint $9.225 billion), which indicates 7-8% growth from the year-ago levels. However, revenue guidance falls short of the Zacks Consensus Estimate of $9.32 billion.
The company expects a $50 million impact on second-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.34-$2.36 for the current quarter. The consensus mark for second-quarter earnings is currently pegged at $2.40.
For fiscal 2025, Salesforce still expects revenues in the range of $37.7-$38 billion. The consensus mark for fiscal 2025 revenues is pegged at $37.93 billion.
It continues to anticipate foreign currency exchange rates to negatively impact its fiscal 2025 revenues by $100 million. However, it slightly lowered projections for Subscription and Support revenues. CRM now anticipates Subscription and Support revenues to increase slightly below 10% on a year-over-year basis and approximately 10% on a constant currency basis. Earlier, the division’s sales were expected to grow 10% on a reported basis and slightly above 10% at constant currency.
Salesforce raised the fiscal 2025 non-GAAP earnings guidance range to $9.86-$9.94 per share from $9.68-$9.76 per share projected previously. The consensus mark for the bottom line currently stands at $9.71. The non-GAAP operating margin is still projected to be approximately 32.5%. It continues to anticipate operating cash flow to increase 21-24% from the prior-year levels.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -5.34% due to these changes.
VGM Scores
Currently, Salesforce.com has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Salesforce.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Salesforce.com belongs to the Zacks Computer - Software industry. Another stock from the same industry, Synopsys (SNPS), has gained 5.4% over the past month. More than a month has passed since the company reported results for the quarter ended April 2024.
Synopsys reported revenues of $1.45 billion in the last reported quarter, representing a year-over-year change of +4.3%. EPS of $3 for the same period compares with $2.54 a year ago.
For the current quarter, Synopsys is expected to post earnings of $3.26 per share, indicating a change of +13.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Synopsys. Also, the stock has a VGM Score of D.
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