It has been about a month since the last earnings report for Salesforce.com (CRM - Free Report) . Shares have added about 2.3% 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 Q4 Earnings Beat Estimates
salesforce.com delivered impressive fourth-quarter fiscal 2019 non-GAAP earnings of 70 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 56 cents and also the year-ago quarter’s figure of 47 cents.
Revenues of $3.60 billion increased 26% year over year and also surpassed the Zacks Consensus Estimate of $3.56 billion. Moreover, the top line improved 27% at constant currency (cc). Excluding the acquisition of Mulesoft, the same grew 20%. Notably, MuleSoft contributed $181 million to revenues in the fourth quarter.
Additionally, the rapid adoption of the company’s cloud-based solutions led to better-than-expected results. However, unfavorable foreign exchange volatility persists to be an overhang.
Quarter in Detail
Coming to its business segments, revenues at Subscription and Support (94% of total) rose about 26% from the year-earlier period to $3.68 billion. Professional Services and Other revenues (6%) climbed 16% to $228 million.
Sales Cloud revenues ascended 11% year over year to $1.05 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, augmented 22% to $964 million. Marketing & Commerce Cloud surged 34% to $535 million.
salesforce’s Platform and other revenues soared 54% to $825 million. Excluding Mulesoft’s subscription and support revenues of $156 million, the segment grew 25%.
Geographically, the company witnessed revenue growth of 26%, each in the Americas and Asia Pacific and 31% in Europe on a year-over-year basis. The company continues to win customers in the international market and also strengthened its relationships with some of the leading companies in the world, which in turn, is helping it deliver strong growth internationally.
On the earnings call, management noted that 42% of its new hires in the fiscal fourth quarter was outside the Americas. Further, its total number of global partner certifications grew 41% year over year.
salesforce’s non-GAAP gross profit came in at $2.76 billion, up 25.6% from the prior-year quarter. Gross margin contracted 20 basis points (bps) to 76.6%.
Non-GAAP operating expenses escalated 28.8% year over year to $2.17 billion. As a percentage of revenues, operating expenses rose 140 bps to 60.1%.
salesforce posted non-GAAP operating income of $596 million, up 15% year over year. However, operating margin contracted 158 bps to 16.5% due to higher operating expenses as a percentage of revenues.
Balance Sheet & Cash Flow
salesforce exited the reported quarter with cash, cash equivalents and marketable securities of $4.34 billion compared with $3.45 billion in the fiscal third quarter.
As of Jan 31, 2019, total unearned revenues were $8.56 billion, up 22% on a year-over-year basis. The metric increased 24% at CC.
salesforce generated operating cash flow of $1.33 billion and free cash flow of $1.16 billion.
For fourth-quarter 2019, management projected a revenue range of $3.67-$3.68 billion.
Further, for the fiscal first quarter non-GAAP earnings are estimated in the range of 60-61 cents per share.
For fiscal 2020, revenues are predicted between $15.95 billion and $16.05 billion, marking 20-21% growth year over year compared with the previous anticipation of $15.90-$16 billion.
Non-GAAP earnings are envisioned in the range of $2.74-$2.76.
Operating cash flow is forecast to increase 20-21% year over year.
Further, the company is now aiming to achieve revenues of $26-$28 billion by fiscal 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.66% due to these changes.
Currently, Salesforce.com has a great Growth Score of A, though it is lagging a lot on the Momentum Score front 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #3 (Hold). We expect an in-line return from the stock in the next few months.