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Salesforce (CRM) reported better-than-expected earnings for the first quarter of fiscal 2023 on Tuesday. Revenue was $7.41 billion, up 26% year-over-year in constant currency, and it beat expectations of $7.38 billion, according to FactSet. Fixed currencies help remove fluctuations in foreign currencies to provide a clearer financial picture. Non-GAAP earnings per share exceeded estimates of $0.98 – including 1 cent market rate accounting interest on strategic investments – from estimates of $0.94. Operating margin – which investors are now watching closely because of the importance of profitable growth broadly – was 0.3% on a GAAP basis and non-GAAP operating margin was 17.6%, beating the estimate of 17.4%. Operating cash flow, another line that has become increasingly important as the Federal Reserve raises interest rates, rose 14% from a year earlier to $3.68 billion, topping estimates of $3.16 billion. Salesforce reported an impressive quarterly quarter this evening, with fairly large cadences and comments indicating healthy demand uninterrupted by the uncertain macro environment. What remains clear is that companies cannot cut back on their investments in digitization, and as an indispensable partner in the digital transformation journeys of businesses around the world, Salesforce revenue must remain perhaps far more permanent than what the market gives. Although management lowered its revenue forecast for the full year, the market had to pass that because the difference was entirely related to foreign exchange rates. We think the most important part of the guidance has been the expected operating margin performance surprise this year. Shares in after-hours trading jump more than 7% to nearly $172 a share, which is a good sign given how poorly the stock — not the company — has performed in this turbulent year. Company-wide results – breakdown of subscription and support revenue results by cloud: Cloud sales revenue increased 20% year-over-year to $1.63 billion. Some of the new earnings in the quarter include DoorDash (DASH), Stellantis (STLA) and PSA Group. Cloud services revenue increased 19% year-over-year to $1.76 billion. Management has long highlighted Client State Farm as a success story. Platform and others (including Slack, which was acquired by Salesforce on July 21, 2021) increased revenue 58% year-over-year to $1.42 billion. Slack beat management’s revenue forecast of $348 million versus guidance of $330 million. This was the fourth consecutive quarter with 40% growth in customers who spend more than $100,000 with Slack annually. Marketing and merchandising revenue increased 24% year-over-year to $1.09 billion. Some of the marketing gains in the quarter include Bose and Colgate-Palmolive (CL). Co-CEO Brett Taylor highlighted the importance of Salesforce’s Marketing Cloud to chief marketing officers “as they navigate significant changes in mobile operating systems and new privacy regulations around the world.” Yeti and Goodyear (GT) are named for their new commerce cloud win. The data — which includes previous acquisitions of Tableau and Mulesoft — increased revenue 15% to $955 million. ADT, Bose and Lookers Motor Group had some big wins this quarter. Mulesoft’s biggest deals included NTT and a deep relationship with Rocket Mortgage. On a geographic basis, and in constant currency terms, sales increased 21% year over year in the Americas, 39% in Europe, the Middle East and Africa (EMEA) and 32% in the Asia Pacific (APAC) region. On some of the other closely-watched industry metrics that provide a view of Salesforce’s future revenue: Residual Performance Obligation (RPO), which represents all future revenue under a contract not recognized as revenue, ended the quarter at $42 billion, top 20% on an annual basis. Current RPO (cRPO), which represents future revenue under a contract that is expected to be recognized as revenue over the next twelve months, ended the quarter at $21.5 billion, up 24% in constant currency and estimates matched. Revenue depletion remained at record lows between 7% to 7.5%. Marc Benioff, Notes president and co-CEO, said on an earnings call with investors that broader economic volatility has not materially affected Salesforce. Disciplined decision making and continued improvement of profitability in the long run were emphasized as priorities for management. Benioff reiterated that the company has no plans for major acquisitions at the moment, even with multiples of many enterprise software as a service companies across the board. We believe investors will continue to encourage this decision as large-scale M&A generally means margin relief. MuleSoft revenue increased 9% year over year over the prior year. The company says it will see the benefits of continued regulatory changes in the back half of this fiscal year. Guidance on guidance for fiscal year 2023, management slightly lowered its forecast by about $300 million to a range of $31.7 billion to $31.8 billion, which is below estimates of about $32.06 billion. Management reduced its guidance due to an additional $300 million from foreign currency headwinds. On a more positive note, management slightly raised its GAAP operating margin guidance to approximately 3.8% from 3.6% versus an estimate of 3.2%, and non-GAAP margins of 20.4% from 20% versus an estimate of 19.9%. These may be small bumps, but the market should like it because as mentioned earlier, it wants to see profitable growth at scale. Non-GAAP earnings per share are forecast at $4.74 to $4.76, well above estimates of $4.66 and significantly up from its previous outlook of $4.62 to $4.64. Operating cash flow for fiscal year 2023 forecast was maintained from 21% to 22% YoY. For the second quarter of fiscal year 2023, management expects revenue of $7.69 billion to $7.70 billion, which is just below the estimate of $7.77 billion. This forecast includes headwinds of $200 million year-over-year from foreign exchange rates. Non-GAAP earnings per share are expected to be $1.02 to $1.02, down from estimates of $1.14. In the second quarter, cRPO is expected to grow 15% year over year, which translates to approximately $21.5 billion versus estimates of $22.14 billion. (Jim Cramer’s Charitable Trust Long CRM. See here for a full list of stocks.) 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Marc Benioff, CEO of Salesforce.com speaks at the World Economic Forum in Davos, Switzerland, January 23, 2020.
Adam Galcia | CNBC
Salesforce (CRM) reported better-than-expected earnings for the first quarter of fiscal 2023 on Tuesday.
Revenue was $7.41 billion, up 26% year-over-year in constant currency, and it beat expectations of $7.38 billion, according to FactSet. Fixed currencies help remove fluctuations in foreign currencies to provide a clearer financial picture. Non-GAAP earnings per share exceeded estimates of $0.98 – including 1 cent market rate accounting interest on strategic investments – from estimates of $0.94.
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