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Salesforce (CRM) Beats on Q1 Earnings, Raises FY19 View

Read MoreHide Full Article Inc. (CRM - Free Report) reported splendid first-quarter fiscal 2019 non-GAAP earnings of 74 cents per share, which strongly beat the Zacks Consensus Estimate of 46 cents. The figure increased more than twofold from the year-ago quarter.

Revenues of $3.006 billion increased 25% year over year and surpassed the Zacks Consensus Estimate of $2.940 billion. Furthermore, revenues came above the guided range of $2.925-$2.935 billion. Revenues grew 22% at constant currency (cc). The rapid adoption of the company’s cloud-based solutions led to the better-than-expected results.

Top-line Details

Coming to its business segments, revenues at Subscription and Support increased about 27.2% from the year-ago quarter to $2.810 billion. Professional Services and Other revenues climbed 4.3% to $196 million.

Sales Cloud, Service Cloud, Platform and other and Marketing & Commerce Cloud grew 16.3%, 29.3%, 35.6% and 41.1%, respectively. 

Geographically, the company witnessed revenue growth of 19%, 48.2% and 34.1% in the Americas, Europe and Asia Pacific, respectively, on a year-over-year basis.

Management is extremely optimistic about enhancement of customer experience that has aided growth of the cloud segment. Artificial intelligence (AI) related innovations have further boosted the same with Einstein Analytics providing helpful insights.

The company added and strengthened its relationships with a few notable customers during the quarter such as Citi, Philips and Santander UK, SoftBank and LUXA among others. 

Additionally, the company’s acquisition of MuleSoft is a major positive, per management. The buyout has added an impressive integration platform. Via MuleSoft, Salesforce’s customers can connect their data on private or public cloud or on on-premise storage. The company’s recent acquisition of its long-time partner CloudCraze, a B2B ecommerce platform, will also be accretive for the company’s financials.

Operating Details

Salesforce’s non-GAAP gross profit came in at $2.312 billion, up 26.9% from the year-ago quarter. Gross margin expanded 90 basis points (bps) to 76.9%, primarily owing to solid revenue growth.

Non-GAAP operating expenses increased 20.7% year over year to $1.80 billion. As a percentage of revenues, operating expenses decreased 230 bps to 59.9%.

Salesforce posted non-GAAP operating income of $512 million, up 54.7% year over year. Operating margin expanded 320 bps to 17% driven by an improved gross margin base and lower operating expenses as a percentage of revenues.

Balance Sheet & Cash Flow

Salesforce exited the quarter with cash, cash equivalents and marketable securities of $7.16 billion compared with $4.52 billion in the previous quarter.

As of Apr 30, 2018, total unearned revenues were $6.2 billion, up 25% on a year-over-year basis (23% at cc).

Salesforce generated operating cash flow of $1.47 billion and free cash flow of $1.344 billion. Inc Price, Consensus and EPS Surprise Inc Price, Consensus and EPS Surprise | Inc Quote


For second-quarter fiscal 2019, revenues are projected between $3.22 billion and $3.23 billion, an increase of 25% year over year.

Non-GAAP earnings are expected in the range of 46–47 cents per share.

Deferred revenues are anticipated to increase in the range of 22–23% year over year, excluding the impact of the recently acquired MuleSoft.

The company raised its fiscal 2019 guidance. Revenues are now projected between $13.075 billion and $13.125 billion, an increase of 24–25% year over year, up from the previous expectation of $12.6 billion and $12.65 billion.

Non-GAAP earnings are expected in the range of $2.29–$2.31 per share.

Operating cash flow is anticipated to increase in the range of 14–15% year over year.


Salesforce, on the back of stellar first-quarter 2019 results, raised its fiscal 2019 guidance and stated that it is on track to reach its $20 billion annual revenue mark in a few years.

The company’s diverse cloud offerings, expanding partner base and considerable spending on digital marketing are key catalysts. Management is also extremely optimistic about grabbing a major share of the $120 billion market that the company caters to.

Additionally, strategic acquisitions and the resultant synergies are anticipated to prove conducive to growth in the long haul.

Zacks Rank & Key Picks

Salesforce currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Other top-ranked stocks in the broader technology industry include Twitter, Inc. (TWTR - Free Report) , NVIDIA Corporation (NVDA - Free Report) and Western Digital Corporation (WDC - Free Report) , all sporting a Zacks Rank #1.

Long-term earnings growth rates for Twitter, NVIDIA and Western Digital are currently projected to be 23.1%, 10.3% and 19% respectively.

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