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Salesforce (CRM) Rallies 7.2% on Upbeat FY22 Revenue Outlook

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Shares of Salesforce (CRM - Free Report) rallied 7.2% on Thursday after the cloud-based enterprise software maker raised the fiscal 2022 revenue guidance and issued a strong outlook for fiscal 2023. The upbeat guidance reflects continued solid demand for the company’s cloud-based software solutions fueled by the COVID-19 pandemic-led shift to a hybrid work environment.

The business software maker raised its fiscal 2022 revenue guidance range to $26.25-$26.35 billion (mid-point $26.3 billion) from the $26.2-$26.3 billion forecasted previously. The revised fiscal 2022 guided range is higher than the Zacks Consensus Estimate of $26.26 billion at the mid-point.

For fiscal 2023, Salesforce projects revenues between $31.65 billion and $31.80 billion, which is higher than the consensus mark of $31.33 billion. Moreover, it anticipates the non-GAAP operating margin between 3% and 3.5% in fiscal 2023.

Salesforce is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The company’s focus on introducing more aligned products per customer needs is bolstering its top line.

Management believes that digitization is reinforcing the company’s strategic relationships. Its ability to provide an integrated solution for customers’ business problems is the key driver. The firm’s products like Trailhead and myTrailhead are helping companies through their transformation processes as well as an increasing business scale with modern technology.

Salesforce believes digital transformation will consistently open up a huge growth opportunity for the entire industry. As enterprises progress with the digital transformation efforts, the use of cloud services is expected to significantly shoot up in the upcoming period.

According to Gartner’s estimates, the spending on public cloud services will grow from $270 billion in 2020 to more than $332.3 billion in 2021. Per a Grand View Research report, the global CRM software market is projected to witness a CAGR of 10.6% during 2021-2028. With its SaaS-based CRM and social enterprise applications, we believe Salesforce is well positioned to lead the market.

Additionally, acquisitions have been one of the key growth strategies, fortifying the company’s position in the CRM solution-providing space. Most recently, the company acquired Slack in a cash-stock deal worth $27.7 billion. The Slack acquisition is likely to position the company to be a leader in the enterprise team collaboration solution space and better compete with Microsoft’s (MSFT - Free Report) Teams product.

Zacks Rank & Key Picks

Salesforce currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector include Cadence Design Systems (CDNS - Free Report) and NVIDIA (NVDA - Free Report) , both carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Cadence Design and NVIDIA is currently pegged at 11.7% and 17.7%, respectively.