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Salesforce (CRM) Soars 6% on Q2 Earnings Beat, Raised Guidance
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Salesforce (CRM - Free Report) shares gained 5.6% during Wednesday’s extended trading session after the enterprise software maker reported better-than-expected second-quarter results and raised guidance for the full fiscal 2024.
The enterprise cloud computing solution provider’s second-quarter non-GAAP earnings increased 78% to $2.12 per share from $1.19 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $1.90. The robust year-over-year bottom line 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 $8.60 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $8.52 billion. The top line also improved 11% in constant currency.
Salesforce has been benefiting from the resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment as customers are continuing with their major digital transformation. The strong second-quarter top-line performance also reflects 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 the demand for its solutions during the reported quarter.
Coming to CRM’s business segments, revenues from Subscription and Support (93% of the total revenues) increased 12% from the year-earlier period to $8 billion. Professional Services and Other (7% of the total sales) revenues increased 3.5% to $597 million. Our second-quarter revenue estimates for Subscription and Support, and Professional Services segments were pegged at $7.83 billion and $680.8 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 12% year over year to $1.90 billion. Revenues from Service Cloud also improved 12% to $2.05 billion.
Marketing & Commerce Cloud revenues jumped 10% to $1.24 billion. Salesforce Platform and Other revenues were up 11% to $1.64 billion. Also, revenues from Data increased 16% year over year to $1.19 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Data Cloud services second-quarter revenue were pegged at $1.82 billion, $1.97 billion, $1.2 billion, $1.7 billion and $1.14 billion, respectively.
Geographically, Salesforce registered revenue growth of 10% in America (67% of the total revenues), 20% in the Asia Pacific (10%) and 13% in the EMEA (23%) on a year-over-year basis.
Salesforce’s gross profit came in at $6.49 billion, up 16% from the prior-year period. Moreover, the gross margin improved 300 basis points (bps) to 75%.
Salesforce recorded a non-GAAP operating income of $2.72 billion, highlighting an increase of 77% from the year-ago quarter’s level of $1.54 billion. Moreover, the non-GAAP operating margin expanded 1,170 bps to 31.6% from 19.9% 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 58% from 69% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal second quarter with cash, cash equivalents and marketable securities of $12.4 billion, down from the $14 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $808 million and free cash flow of $628 million in the second quarter. During the first half of fiscal 2024, the company generated operating and free cash flows of $5.3 billion and $4.89 billion, respectively.
As of Jul 31, 2023, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $24.1 billion, up 12% on a year-over-year basis. The company bought back shares worth $1.95 billion in the second quarter and $4 billion during the first half of fiscal 2024. With this buyback of shares, the company has now approximately $7.9 billion remaining under its current authorization limit of $20 billion.
Strong Guidance for Q3 and FY24
Salesforce provided strong guidance for the third quarter and raised the outlook for fiscal 2024. For the fiscal third quarter, Salesforce projects total sales between $8.70 billion and $8.72 billion (midpoint $8.71 billion), indicating 11% year-over-year growth.
The company expects a $100 million impact on third-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.05-$2.06 for the current quarter.
For fiscal 2024, Salesforce raised the revenue guidance range to $34.7-$34.8 billion from the previous forecast in the band of $34.5-$34.7 billion. The company continues to expect no impact from foreign currency exchange rates.
Salesforce now projects fiscal 2024 non-GAAP earnings between $8.04 and $8.06 per share instead of the $7.41-$7.43 per share band anticipated earlier. The company raised its fiscal 2024 estimates for the non-GAAP operating margin to approximately 30% from 28% expected previously. Moreover, it now anticipates operating cash flow to increase 22-23% year over year in fiscal 2024, up from the earlier projection of 16-17% growth.
Salesforce’s upbeat guidance for fiscal 2024 reflects the benefits of the company’s recent price hike and the resilient demand for its solutions despite the challenging macroeconomic environment. In July 2023, CRM announced a price hike across its core products — Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau — by an average 9%, effective from August 2023.
The hike marked Salesforce’s first product price increase in the last seven years. The company stated that it invested more than $20 billion in the last seven years in research and development to deliver 22 new releases and add thousands of new features, including the recent generative artificial intelligence to its software.
Zacks Rank & Other Stocks to Consider
Salesforce currently carries a Zacks Rank #2 (Buy). Shares of CRM have rallied 62.1% year to date (YTD).
The Zacks Consensus Estimate for NVIDIA's third-quarter fiscal 2024 earnings has been revised upward by 39.7% to $3.24 per share in the past seven days. For fiscal 2024, earnings estimates have increased by 30.8% cents to $10.46 per share in the past seven days.
NVIDIA’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing on one occasion, the average surprise being 9.8%. Shares of NVDA have surged 237.1% YTD.
The Zacks Consensus Estimate for Manhattan Associates’ third-quarter 2023 earnings has been revised 5 cents northward to 77 cents per share in the past 60 days. For 2023, earnings estimates have moved 22 cents upward to $3.09 per share in the past 60 days.
Manhattan Associates’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 31.6%. Shares of MANH have rallied 67.4% YTD.
The Zacks Consensus Estimate for Zscaler's fourth-quarter fiscal 2023 earnings has remained unchanged at 49 cents per share in the past 60 days. For fiscal 2023, earnings estimates have remained unchanged at $1.63 per share in the past 60 days.
Zscaler's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 19.6%. Shares of ZS have risen 31.6% YTD.
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Salesforce (CRM) Soars 6% on Q2 Earnings Beat, Raised Guidance
Salesforce (CRM - Free Report) shares gained 5.6% during Wednesday’s extended trading session after the enterprise software maker reported better-than-expected second-quarter results and raised guidance for the full fiscal 2024.
The enterprise cloud computing solution provider’s second-quarter non-GAAP earnings increased 78% to $2.12 per share from $1.19 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $1.90. The robust year-over-year bottom line 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 $8.60 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $8.52 billion. The top line also improved 11% in constant currency.
Salesforce has been benefiting from the resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment as customers are continuing with their major digital transformation. The strong second-quarter top-line performance also reflects 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 the demand for its solutions during the reported quarter.
Salesforce Inc. Price, Consensus and EPS Surprise
Salesforce Inc. price-consensus-eps-surprise-chart | Salesforce Inc. Quote
Quarterly Details
Coming to CRM’s business segments, revenues from Subscription and Support (93% of the total revenues) increased 12% from the year-earlier period to $8 billion. Professional Services and Other (7% of the total sales) revenues increased 3.5% to $597 million. Our second-quarter revenue estimates for Subscription and Support, and Professional Services segments were pegged at $7.83 billion and $680.8 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 12% year over year to $1.90 billion. Revenues from Service Cloud also improved 12% to $2.05 billion.
Marketing & Commerce Cloud revenues jumped 10% to $1.24 billion. Salesforce Platform and Other revenues were up 11% to $1.64 billion. Also, revenues from Data increased 16% year over year to $1.19 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Data Cloud services second-quarter revenue were pegged at $1.82 billion, $1.97 billion, $1.2 billion, $1.7 billion and $1.14 billion, respectively.
Geographically, Salesforce registered revenue growth of 10% in America (67% of the total revenues), 20% in the Asia Pacific (10%) and 13% in the EMEA (23%) on a year-over-year basis.
Salesforce’s gross profit came in at $6.49 billion, up 16% from the prior-year period. Moreover, the gross margin improved 300 basis points (bps) to 75%.
Salesforce recorded a non-GAAP operating income of $2.72 billion, highlighting an increase of 77% from the year-ago quarter’s level of $1.54 billion. Moreover, the non-GAAP operating margin expanded 1,170 bps to 31.6% from 19.9% 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 58% from 69% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal second quarter with cash, cash equivalents and marketable securities of $12.4 billion, down from the $14 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $808 million and free cash flow of $628 million in the second quarter. During the first half of fiscal 2024, the company generated operating and free cash flows of $5.3 billion and $4.89 billion, respectively.
As of Jul 31, 2023, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $24.1 billion, up 12% on a year-over-year basis. The company bought back shares worth $1.95 billion in the second quarter and $4 billion during the first half of fiscal 2024. With this buyback of shares, the company has now approximately $7.9 billion remaining under its current authorization limit of $20 billion.
Strong Guidance for Q3 and FY24
Salesforce provided strong guidance for the third quarter and raised the outlook for fiscal 2024. For the fiscal third quarter, Salesforce projects total sales between $8.70 billion and $8.72 billion (midpoint $8.71 billion), indicating 11% year-over-year growth.
The company expects a $100 million impact on third-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.05-$2.06 for the current quarter.
For fiscal 2024, Salesforce raised the revenue guidance range to $34.7-$34.8 billion from the previous forecast in the band of $34.5-$34.7 billion. The company continues to expect no impact from foreign currency exchange rates.
Salesforce now projects fiscal 2024 non-GAAP earnings between $8.04 and $8.06 per share instead of the $7.41-$7.43 per share band anticipated earlier. The company raised its fiscal 2024 estimates for the non-GAAP operating margin to approximately 30% from 28% expected previously. Moreover, it now anticipates operating cash flow to increase 22-23% year over year in fiscal 2024, up from the earlier projection of 16-17% growth.
Salesforce’s upbeat guidance for fiscal 2024 reflects the benefits of the company’s recent price hike and the resilient demand for its solutions despite the challenging macroeconomic environment. In July 2023, CRM announced a price hike across its core products — Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau — by an average 9%, effective from August 2023.
The hike marked Salesforce’s first product price increase in the last seven years. The company stated that it invested more than $20 billion in the last seven years in research and development to deliver 22 new releases and add thousands of new features, including the recent generative artificial intelligence to its software.
Zacks Rank & Other Stocks to Consider
Salesforce currently carries a Zacks Rank #2 (Buy). Shares of CRM have rallied 62.1% year to date (YTD).
Some other top-ranked stocks from the broader technology sector are NVIDIA (NVDA - Free Report) , Manhattan Associates (MANH - Free Report) and Zscaler (ZS - Free Report) . NVIDIA and Manhattan Associates each sport a Zacks Rank #1 (Strong Buy), while Zscaler carries a Zacks Rank #2 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for NVIDIA's third-quarter fiscal 2024 earnings has been revised upward by 39.7% to $3.24 per share in the past seven days. For fiscal 2024, earnings estimates have increased by 30.8% cents to $10.46 per share in the past seven days.
NVIDIA’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing on one occasion, the average surprise being 9.8%. Shares of NVDA have surged 237.1% YTD.
The Zacks Consensus Estimate for Manhattan Associates’ third-quarter 2023 earnings has been revised 5 cents northward to 77 cents per share in the past 60 days. For 2023, earnings estimates have moved 22 cents upward to $3.09 per share in the past 60 days.
Manhattan Associates’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 31.6%. Shares of MANH have rallied 67.4% YTD.
The Zacks Consensus Estimate for Zscaler's fourth-quarter fiscal 2023 earnings has remained unchanged at 49 cents per share in the past 60 days. For fiscal 2023, earnings estimates have remained unchanged at $1.63 per share in the past 60 days.
Zscaler's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 19.6%. Shares of ZS have risen 31.6% YTD.