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Why Is Salesforce.com (CRM) Down 2.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Salesforce.com (CRM - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Salesforce.com due for a breakout? 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 Q4 Earnings, Guidance Weak
Salesforce reported better-than-expected fourth-quarter fiscal 2024 results. The enterprise cloud computing solution provider’s fourth-quarter non-GAAP earnings increased 36% to $2.29 per share from $1.68 in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.26. The robust year-over-year growth was mainly driven by higher sales and the benefits of ongoing cost-restructuring initiatives, which include trimming of the workforce and a reduction in office spaces.
Salesforce’s quarterly revenues of $9.26 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $9.21 billion. The top line also improved 10% at constant currency.
CRM has been benefiting from resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment as customers continue with their major digital transformation. The strong fourth-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 $8.75 billion. However, Professional Services and Other (6% of total sales) revenues decreased 9.4% to $539 million. Our estimates for the Subscription and Support, and Professional Services and Other segments’ revenues were pegged at $8.53 billion and $666 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 10.2% year over year to $1.97 billion. Revenues from Service Cloud also improved 12.2% to $2.16 billion.
Marketing & Commerce Cloud revenues increased 8.2% to $1.27 billion. Platform & Other revenues were up 10.5% 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 21% year over year to $1.63 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Integration & Analytics services revenues were pegged at $1.98 billion, $2.11 billion, $1.27 billion, $1.72 billion and $1.46 billion, respectively.
Geographically, Salesforce registered revenue growth of 9% in America (67% of total revenues), 19% in the Asia Pacific (10%) and 11% in EMEA (23%) on a year-over-year basis.
Salesforce’s non-GAAP gross profit came in at $7.48 billion, up 12.3% year over year. Moreover, the gross margin improved 200 basis points (bps) to 81%.
It recorded a non-GAAP operating income of $2.92 billion, highlighting an increase of approximately 19.3% from the year-ago quarter’s $2.45 billion. Moreover, the non-GAAP operating margin expanded 220 bps to 31.4% from 29.2% in the year-ago quarter, primarily due to an improvement in gross margin. Non-GAAP operating expenses, as a percentage of revenues, declined to 49% from 50% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of $14.2 billion, up from $11.9 billion at the end of the previous quarter.
CRM generated operating cash flow of $3.4 billion and free cash flow of $3.26 billion in the fourth quarter. During fiscal 2024, the company generated operating and free cash flows of $10.23 billion and $9.5 billion, respectively.
As of Jan 31, 2024, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $56.9 billion, up 17% on a year-over-year basis. The company bought back shares worth $1.7 billion in the fourth quarter and $7.7 billion during fiscal 2024.
Additionally, Salesforce has increased the share repurchase authorization limit by $10 billion, bringing the total authorization to $30 billion. Since the inception of the share repurchase program, the company has bought back stocks worth $11.7 billion. Therefore, at the end of fiscal 2024, it has approximately $18 billion remaining under the repurchase program.
Furthermore, management initiated a quarterly cash dividend policy with its board of directors approving a cash dividend of 40 cents per share. The dividend will be paid on Apr 11 to shareholders of record as of Mar 14.
Guidance for Q4 and FY25
Salesforce provided guidance for the first quarter and full-year fiscal 2025. For the fiscal first quarter, it projects total sales to be between $9.12 billion and $9.17 billion (midpoint $9.145 billion), indicating 11% growth from the year-ago levels. However, revenue guidance falls slightly short of the Zacks Consensus Estimate of $9.19 billion.
The company expects a $50 million impact on first-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.37-$2.39 for the current quarter. The consensus mark for first-quarter earnings is currently pegged at $2.20.
For fiscal 2025, Salesforce expects revenues in the range of $37.7-$38 billion, lower than the Zacks Consensus Estimate of $38.59 billion. The company expects foreign currency exchange rates to negatively impact its fiscal 2025 revenues by $100 million. It projects Subscription and Support revenues to grow 10% from the year-earlier levels on a reported basis and slightly above 10% at constant currency.
Salesforce forecast fiscal 2025 non-GAAP earnings to be between $9.68 and $9.76 per share, way above the consensus mark of $9.51. Non-GAAP operating margin is projected to be approximately 32.5%. It anticipates operating cash flow to increase 21-24% from the prior-year levels in fiscal 2025.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 11.01% due to these changes.
VGM Scores
Currently, Salesforce.com has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 trending upward for the stock, and the magnitude of these revisions looks promising. 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 is part of the Zacks Computer - Software industry. Over the past month, Ansys (ANSS - Free Report) , a stock from the same industry, has gained 3.9%. The company reported its results for the quarter ended December 2023 more than a month ago.
Ansys reported revenues of $805.11 million in the last reported quarter, representing a year-over-year change of +15.9%. EPS of $3.94 for the same period compares with $3.09 a year ago.
For the current quarter, Ansys is expected to post earnings of $1.83 per share, indicating a change of -1.1% 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 Ansys. Also, the stock has a VGM Score of D.
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Why Is Salesforce.com (CRM) Down 2.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Salesforce.com (CRM - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Salesforce.com due for a breakout? 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 Q4 Earnings, Guidance Weak
Salesforce reported better-than-expected fourth-quarter fiscal 2024 results. The enterprise cloud computing solution provider’s fourth-quarter non-GAAP earnings increased 36% to $2.29 per share from $1.68 in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.26. The robust year-over-year growth was mainly driven by higher sales and the benefits of ongoing cost-restructuring initiatives, which include trimming of the workforce and a reduction in office spaces.
Salesforce’s quarterly revenues of $9.26 billion climbed 11% year over year, surpassing the Zacks Consensus Estimate of $9.21 billion. The top line also improved 10% at constant currency.
CRM has been benefiting from resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment as customers continue with their major digital transformation. The strong fourth-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 $8.75 billion. However, Professional Services and Other (6% of total sales) revenues decreased 9.4% to $539 million. Our estimates for the Subscription and Support, and Professional Services and Other segments’ revenues were pegged at $8.53 billion and $666 million, respectively.
Under the Subscription and Support segment, Sales Cloud revenues grew 10.2% year over year to $1.97 billion. Revenues from Service Cloud also improved 12.2% to $2.16 billion.
Marketing & Commerce Cloud revenues increased 8.2% to $1.27 billion. Platform & Other revenues were up 10.5% 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 21% year over year to $1.63 billion.
Our estimates for Sales, Service, Market & Commerce, Platform & Other, and Integration & Analytics services revenues were pegged at $1.98 billion, $2.11 billion, $1.27 billion, $1.72 billion and $1.46 billion, respectively.
Geographically, Salesforce registered revenue growth of 9% in America (67% of total revenues), 19% in the Asia Pacific (10%) and 11% in EMEA (23%) on a year-over-year basis.
Salesforce’s non-GAAP gross profit came in at $7.48 billion, up 12.3% year over year. Moreover, the gross margin improved 200 basis points (bps) to 81%.
It recorded a non-GAAP operating income of $2.92 billion, highlighting an increase of approximately 19.3% from the year-ago quarter’s $2.45 billion. Moreover, the non-GAAP operating margin expanded 220 bps to 31.4% from 29.2% in the year-ago quarter, primarily due to an improvement in gross margin. Non-GAAP operating expenses, as a percentage of revenues, declined to 49% from 50% in the year-ago quarter.
Balance Sheet & Other Details
Salesforce exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of $14.2 billion, up from $11.9 billion at the end of the previous quarter.
CRM generated operating cash flow of $3.4 billion and free cash flow of $3.26 billion in the fourth quarter. During fiscal 2024, the company generated operating and free cash flows of $10.23 billion and $9.5 billion, respectively.
As of Jan 31, 2024, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $56.9 billion, up 17% on a year-over-year basis. The company bought back shares worth $1.7 billion in the fourth quarter and $7.7 billion during fiscal 2024.
Additionally, Salesforce has increased the share repurchase authorization limit by $10 billion, bringing the total authorization to $30 billion. Since the inception of the share repurchase program, the company has bought back stocks worth $11.7 billion. Therefore, at the end of fiscal 2024, it has approximately $18 billion remaining under the repurchase program.
Furthermore, management initiated a quarterly cash dividend policy with its board of directors approving a cash dividend of 40 cents per share. The dividend will be paid on Apr 11 to shareholders of record as of Mar 14.
Guidance for Q4 and FY25
Salesforce provided guidance for the first quarter and full-year fiscal 2025. For the fiscal first quarter, it projects total sales to be between $9.12 billion and $9.17 billion (midpoint $9.145 billion), indicating 11% growth from the year-ago levels. However, revenue guidance falls slightly short of the Zacks Consensus Estimate of $9.19 billion.
The company expects a $50 million impact on first-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.37-$2.39 for the current quarter. The consensus mark for first-quarter earnings is currently pegged at $2.20.
For fiscal 2025, Salesforce expects revenues in the range of $37.7-$38 billion, lower than the Zacks Consensus Estimate of $38.59 billion. The company expects foreign currency exchange rates to negatively impact its fiscal 2025 revenues by $100 million. It projects Subscription and Support revenues to grow 10% from the year-earlier levels on a reported basis and slightly above 10% at constant currency.
Salesforce forecast fiscal 2025 non-GAAP earnings to be between $9.68 and $9.76 per share, way above the consensus mark of $9.51. Non-GAAP operating margin is projected to be approximately 32.5%. It anticipates operating cash flow to increase 21-24% from the prior-year levels in fiscal 2025.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 11.01% due to these changes.
VGM Scores
Currently, Salesforce.com has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 trending upward for the stock, and the magnitude of these revisions looks promising. 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 is part of the Zacks Computer - Software industry. Over the past month, Ansys (ANSS - Free Report) , a stock from the same industry, has gained 3.9%. The company reported its results for the quarter ended December 2023 more than a month ago.
Ansys reported revenues of $805.11 million in the last reported quarter, representing a year-over-year change of +15.9%. EPS of $3.94 for the same period compares with $3.09 a year ago.
For the current quarter, Ansys is expected to post earnings of $1.83 per share, indicating a change of -1.1% 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 Ansys. Also, the stock has a VGM Score of D.