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Salesforce (CRM) Soars 9% on Q3 Earnings Beat, Raises Guidance
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Salesforce (CRM - Free Report) shares gained 8.7% during Wednesday’s extended trading session after the enterprise software maker reported better-than-expected third-quarter results and raised guidance for the full fiscal 2024.
The enterprise cloud computing solution provider’s third-quarter non-GAAP earnings increased 51% to $2.11 per share from $1.40 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.06. 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 $8.72 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $8.71 billion. The top line also improved 10% 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 third-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 12.6% from the year-earlier period to $8.14 billion. However, Professional Services and Other (7% of the total sales) revenues decreased 4.1% to $579 million. Our third-quarter revenue estimates for the Subscription and Support and Professional Services segments were pegged at $8 billion and $701.8 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 11% year over year to $1.91 billion. Revenues from Service Cloud also improved 12% to $2.07 billion.
Marketing & Commerce Cloud revenues jumped 9% to $1.23 billion. Salesforce Platform and Other revenues were up 11% to $1.69 billion. Also, revenues from Data increased 22% year over year to $1.25 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Data Cloud services third-quarter revenues were pegged at $1.86 billion, $2.01 billion, $1.24 billion, $1.7 billion and $1.19 billion, respectively.
Geographically, Salesforce registered revenue growth of 9% in America (67% of the total revenues), 18% in the Asia Pacific (10%) and 14% in the EMEA (23%) on a year-over-year basis.
Salesforce’s gross profit came in at $6.57 billion, up 14% from the prior-year period. Moreover, the gross margin improved 200 basis points (bps) to 75.3%.
Salesforce recorded a non-GAAP operating income of $2.72 billion, highlighting an increase of approximately 53% from the year-ago quarter’s level of $1.78 billion. Moreover, the non-GAAP operating margin expanded 850 bps to 31.2% from 22.7% 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 67% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $11.9 billion, down from the $12.4 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $1.53 billion and free cash flow of $1.37 billion in the third quarter. During the first nine months of fiscal 2024, the company generated operating and free cash flows of $6.83 billion and $6.24 billion, respectively.
As of Oct 31, 2023, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $23.9 billion, up 14% on a year-over-year basis. The company bought back shares worth $1.93 billion in the third quarter and $5.93 billion during the first nine months of fiscal 2024. With this buyback of shares, CRM now has approximately $6 billion remaining under its current authorization limit of $20 billion.
Strong Guidance for Q4 and FY24
Salesforce provided strong guidance for the fourth quarter and updated the outlook for fiscal 2024. For the fiscal fourth quarter, Salesforce projects total sales between $9.18 billion and $9.23 billion (midpoint $8.205 billion), indicating 10% year-over-year growth.
The company expects no impact on fourth-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.25-$2.26 for the current quarter.
For fiscal 2024, Salesforce narrowed the revenue guidance range to $34.75-$34.8 billion from the previous forecast in the band of $34.7-$34.8 billion. The company expects foreign currency exchange rates to negatively impact its fiscal 2024 revenues by $50 million.
Salesforce raised the fiscal 2024 non-GAAP earnings forecast to $8.18 and $8.19 per share instead of the $8.04-$8.06 per share band anticipated earlier. The company raised its fiscal 2024 estimates for the non-GAAP operating margin to approximately 30.5% from 30% expected previously. Moreover, it now anticipates operating cash flow to increase 30-33% year over year in fiscal 2024, up from the earlier projection of 22-23% 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 of 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 & Stocks to Consider
Salesforce currently carries a Zacks Rank #3 (Hold). Shares of CRM have surged 86.5% year to date (YTD).
The Zacks Consensus Estimate for Intel’s fourth-quarter 2023 earnings has moved a penny north to 44 cents per share in the past seven days. The consensus estimate for 2023 earnings has increased 4 cents to 95 cents in the past seven days.
Intel's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 136.3%. Shares of INTC have surged 70.4% YTD.
The Zacks Consensus Estimate for Aspen's second-quarter fiscal 2024 earnings has moved north 14 cents to $1.49 per share in the past 30 days. The consensus estimate for fiscal 2024 earnings has increased 5 cents to $6.63 per share in the past 30 days.
Aspen's earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average negative surprise of 32.3%. Shares of AZPN have dropped 9.2% YTD.
The Zacks Consensus Estimate for Datadog's fourth-quarter 2023 earnings has moved north 9 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 2 cents to $1.53 per share in the past seven days.
DDOG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.6%. Datadog shares have rallied 60.5% YTD.
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Salesforce (CRM) Soars 9% on Q3 Earnings Beat, Raises Guidance
Salesforce (CRM - Free Report) shares gained 8.7% during Wednesday’s extended trading session after the enterprise software maker reported better-than-expected third-quarter results and raised guidance for the full fiscal 2024.
The enterprise cloud computing solution provider’s third-quarter non-GAAP earnings increased 51% to $2.11 per share from $1.40 reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.06. 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 $8.72 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $8.71 billion. The top line also improved 10% 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 third-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 12.6% from the year-earlier period to $8.14 billion. However, Professional Services and Other (7% of the total sales) revenues decreased 4.1% to $579 million. Our third-quarter revenue estimates for the Subscription and Support and Professional Services segments were pegged at $8 billion and $701.8 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 11% year over year to $1.91 billion. Revenues from Service Cloud also improved 12% to $2.07 billion.
Marketing & Commerce Cloud revenues jumped 9% to $1.23 billion. Salesforce Platform and Other revenues were up 11% to $1.69 billion. Also, revenues from Data increased 22% year over year to $1.25 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Data Cloud services third-quarter revenues were pegged at $1.86 billion, $2.01 billion, $1.24 billion, $1.7 billion and $1.19 billion, respectively.
Geographically, Salesforce registered revenue growth of 9% in America (67% of the total revenues), 18% in the Asia Pacific (10%) and 14% in the EMEA (23%) on a year-over-year basis.
Salesforce’s gross profit came in at $6.57 billion, up 14% from the prior-year period. Moreover, the gross margin improved 200 basis points (bps) to 75.3%.
Salesforce recorded a non-GAAP operating income of $2.72 billion, highlighting an increase of approximately 53% from the year-ago quarter’s level of $1.78 billion. Moreover, the non-GAAP operating margin expanded 850 bps to 31.2% from 22.7% 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 67% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $11.9 billion, down from the $12.4 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $1.53 billion and free cash flow of $1.37 billion in the third quarter. During the first nine months of fiscal 2024, the company generated operating and free cash flows of $6.83 billion and $6.24 billion, respectively.
As of Oct 31, 2023, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $23.9 billion, up 14% on a year-over-year basis. The company bought back shares worth $1.93 billion in the third quarter and $5.93 billion during the first nine months of fiscal 2024. With this buyback of shares, CRM now has approximately $6 billion remaining under its current authorization limit of $20 billion.
Strong Guidance for Q4 and FY24
Salesforce provided strong guidance for the fourth quarter and updated the outlook for fiscal 2024. For the fiscal fourth quarter, Salesforce projects total sales between $9.18 billion and $9.23 billion (midpoint $8.205 billion), indicating 10% year-over-year growth.
The company expects no impact on fourth-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.25-$2.26 for the current quarter.
For fiscal 2024, Salesforce narrowed the revenue guidance range to $34.75-$34.8 billion from the previous forecast in the band of $34.7-$34.8 billion. The company expects foreign currency exchange rates to negatively impact its fiscal 2024 revenues by $50 million.
Salesforce raised the fiscal 2024 non-GAAP earnings forecast to $8.18 and $8.19 per share instead of the $8.04-$8.06 per share band anticipated earlier. The company raised its fiscal 2024 estimates for the non-GAAP operating margin to approximately 30.5% from 30% expected previously. Moreover, it now anticipates operating cash flow to increase 30-33% year over year in fiscal 2024, up from the earlier projection of 22-23% 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 of 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 & Stocks to Consider
Salesforce currently carries a Zacks Rank #3 (Hold). Shares of CRM have surged 86.5% year to date (YTD).
Some better-ranked stocks from the broader technology sector are Intel Corporation (INTC - Free Report) , Aspen Technology, Inc. (AZPN - Free Report) and Datadog, Inc. (DDOG - Free Report) . Intel sports a Zacks Rank #1 (Strong Buy) at present, while Aspen and Datadog each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Intel’s fourth-quarter 2023 earnings has moved a penny north to 44 cents per share in the past seven days. The consensus estimate for 2023 earnings has increased 4 cents to 95 cents in the past seven days.
Intel's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 136.3%. Shares of INTC have surged 70.4% YTD.
The Zacks Consensus Estimate for Aspen's second-quarter fiscal 2024 earnings has moved north 14 cents to $1.49 per share in the past 30 days. The consensus estimate for fiscal 2024 earnings has increased 5 cents to $6.63 per share in the past 30 days.
Aspen's earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average negative surprise of 32.3%. Shares of AZPN have dropped 9.2% YTD.
The Zacks Consensus Estimate for Datadog's fourth-quarter 2023 earnings has moved north 9 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 2 cents to $1.53 per share in the past seven days.
DDOG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.6%. Datadog shares have rallied 60.5% YTD.