It has been about a month since the last earnings report for Salesforce.com (CRM Quick QuoteCRM - Free Report) . Shares have added about 1.2% in that time frame, underperforming 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 catalysts.

Salesforce Beats Q3 Earnings & Revenues Estimates

Salesforce delivered better-than-expected third-quarter fiscal 2022 results. The company’s fiscal third-quarter non-GAAP earnings of $1.27 per share beat the Zacks Consensus Estimate of 92 cents. Quarterly earnings included a benefit of 28 cents per share from the mark-to-mark accounting of CRM’s strategic investments on a non-GAAP tax rate of 21.5%. However, non-GAAP earnings declined 27% from the year-ago quarter’s earnings of $1.74 per share.

Salesforce’s quarterly revenues of $6.86 billion climbed 27% year over year surpassing the Zacks Consensus Estimate of $6.79 billion. The top line also improved 26% in constant currency (cc).

The enterprise cloud computing solutions provider 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 during the fiscal third quarter.

Also, the recently acquired Slack business boosted revenues and  contributed $280 million in total sales during the third quarter.

Quarter in Detail

Coming to Salesforce’s business segments, revenues at Subscription and Support (93% of total revenues) increased 25% from the year-earlier period to $6.38 billion. Professional Services and Other (7% of total sales) revenues climbed 45% to $484 million.

Under the Subscription and Support segment, Sales Cloud revenues grew 17% year over year to $1.5 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 20% to $1.7 billion. Marketing & Commerce Cloud revenues jumped 25% to $1 billion. Salesforce Platform and Other revenues were up 51% to $1.3 billion. Also, revenues from Data increased 20% year over year to $900 million.

Geographically, Salesforce registered revenues at cc of 23% in America (68% of total revenues), 29% in the Asia Pacific (9%) and 35% in the EMEA (23%) on a year-over-year basis.

Salesforce’s gross profit came in at $5.02 billion, up 25% from the prior-year period. However, gross margin contracted 120 basis points (bps) to 73.1%.

Salesforce recorded a non-GAAP operating income of $1.36 billion, up 27% year over year. The operating margin remained flat on a year-over-year basis at 19.8% due to higher revenues, efficiencies from the work-from-anywhere trend and a focus on disciplined spending. Operating expenses flared up 31% year over year to $4.98 billion.

Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $9.39 billion compared with the $9.65 billion recorded at the end of the previous quarter. CRM generated an operating cash flow of $404 million in the fiscal third quarter and $4 billion in the first three quarters of fiscal 2022.

As of Oct 31, 2021, the current remaining performance obligation, which reflects revenues under contract for the next 12 months, was $18.8 billion, up 23% on a year-over-year basis.

Raises Fiscal 2022 Guidance

Buoyed by stronger-than-expected results for the fiscal third quarter, Salesforce raised its guidance for fiscal 2022 to $26.39-$26.40 billion from the $26.25-$26.35 billion projected earlier. The updated guidance includes expected revenue contributions from the newly acquired Slack and Acumen businesses of $565 million and $200 million, respectively.

Management also revised the fiscal 2022 non-GAAP operating margin forecast upward to 18.6% from 18.5%. The updated guidance includes a 140-bps headwind from the Slack and Acumen acquisitions.

Salesforce now projects fiscal 2022 non-GAAP earnings between $4.68 and $4.69 per share, up from its earlier guided range of $4.36-$4.38 per share. The updated earnings guidance assumes merger & acquisition headwinds of 49 cents per share.

Salesforce projects total sales between $7.224 billion and $7.234 billion for the fiscal fourth quarter. Furthermore, CRM anticipates non-GAAP earnings per share in the band of 72-73 cents for the current quarter.

Salesforce also reiterated its guidance for fiscal 2023 that was previously provided on Sep 23. For fiscal 2023, the company projects revenues between $31.70 billion and $31.80 billion, and anticipates non-GAAP operating margin of approximately 20%.

The company also initiated the revenue guidance for the first quarter of fiscal 2023, which projects total sales between $7.215 billion and $7.250 billion, indicating year-over-year growth of 21.

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 -28.58% due to these changes.

VGM Scores

At this time, Salesforce.com has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.