A month has gone by since the last earnings report for Salesforce.com (CRM). Shares have lost about 1.8% 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.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="salesforce Q1 Earnings Beat Estimates” data-reactid=”24″>salesforce Q1 Earnings Beat Estimates
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="salesforce.com delivered impressive first-quarter fiscal 2020 non-GAAP earnings of 93 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 61 cents and improving from the year-ago quarter’s figure of 74 cents.
Management mentioned that mark-to-market adjustments of the company’s strategic investments boosted earnings by 27 cents per share.
Revenues of $3.74 billion increased 24% year over year and surpassed the Zacks Consensus Estimate of $3.68 billion. Moreover, the top line improved 26% at constant currency (cc).
The company is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of the company’s cloud-based solutions led to better-than-expected results. Moreover, the acquisition of Mulesoft contributed $170 million to revenues in the first quarter. However, unfavorable foreign exchange volatility remains an overhang.” data-reactid=”25″>salesforce.com delivered impressive first-quarter fiscal 2020 non-GAAP earnings of 93 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 61 cents and improving from the year-ago quarter’s figure of 74 cents.
Management mentioned that mark-to-market adjustments of the company’s strategic investments boosted earnings by 27 cents per share.
Revenues of $3.74 billion increased 24% year over year and surpassed the Zacks Consensus Estimate of $3.68 billion. Moreover, the top line improved 26% at constant currency (cc).
The company is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of the company’s cloud-based solutions led to better-than-expected results. Moreover, the acquisition of Mulesoft contributed $170 million to revenues in the first quarter. However, unfavorable foreign exchange volatility remains an overhang.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support rose (94% of total revenues) about 24% from the year-earlier period to $3.5 billion. Professional Services and Other revenues (6%) climbed 23% to $241 million.
Sales Cloud revenues ascended 11% year over year to $1.07 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, increased 20% to $1.02 billion. Marketing & Commerce Cloud revenues surged 33% to $561 million.
salesforce’s Platform and Other revenues soared 46% to $842 million, which includes Mulesoft’s subscription and support revenues of $140 million.
Geographically, the company witnessed revenue growth of 25% in the Americas (70% of total revenues), 27% in Asia Pacific (10%) and 32% in Europe (20%), on a year-over-year basis.
Operating Details
salesforce’s non-GAAP gross profit came in at $2.93 billion, up 26.8% from the prior-year quarter. Gross margin expanded 140 basis points (bps) to 78.3%.
Non-GAAP operating expenses escalated 24.7% year over year to $2.24 billion. As a percentage of revenues, operating expenses rose 30 bps to 60.2%.
salesforce posted non-GAAP operating income of $682 million, up 33% year over year. Operating margin expanded 122 bps to 18.2%
Balance Sheet & Cash Flow
salesforce exited the reported quarter with cash, cash equivalents and marketable securities of $6.38 billion compared with $4.34 billion in the prior quarter.
As of Apr 30, 2019, total unearned revenues were $7.6 billion, up 22% on a year-over-year basis. salesforce generated operating cash flow of $1.97 billion and free cash flow of $1.81 billion.
Guidance
For fiscal 2020, revenues are predicted between $16.1 billion and $16.25 billion, marking 21-22% growth year over year. The company expects Salesforce.org to contribute approximately $150-$200 million in revenues in fiscal 2020.
However, strengthening of U.S. dollar relatively to GBP and the euro is likely to keep revenues as well as operating margins under pressure. The company anticipates more than $200 million of foreign exchange headwinds in the full fiscal.
However, the company raised its full-year earnings per share guidance to the range of $2.88-$2.90 per share from $2.54-$2.56 envisioned earlier. Operating cash flow is still forecast to increase 20-21% year over year.
Coming to fiscal second quarter, Salesforce.org is likely to generate approximately $40 million to $50 million revenues. Revenues are guided between $3.94 billion and $3.95 billion.
However, non-GAAP diluted earnings per share are anticipated in the range of 46-47 cents for the fiscal second quarter. Transaction expenses associated with the consolidation of Salesforce.org is an overhang.” data-reactid=”26″>Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support rose (94% of total revenues) about 24% from the year-earlier period to $3.5 billion. Professional Services and Other revenues (6%) climbed 23% to $241 million.
Sales Cloud revenues ascended 11% year over year to $1.07 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, increased 20% to $1.02 billion. Marketing & Commerce Cloud revenues surged 33% to $561 million.
salesforce’s Platform and Other revenues soared 46% to $842 million, which includes Mulesoft’s subscription and support revenues of $140 million.
Geographically, the company witnessed revenue growth of 25% in the Americas (70% of total revenues), 27% in Asia Pacific (10%) and 32% in Europe (20%), on a year-over-year basis.
Operating Details
salesforce’s non-GAAP gross profit came in at $2.93 billion, up 26.8% from the prior-year quarter. Gross margin expanded 140 basis points (bps) to 78.3%.
Non-GAAP operating expenses escalated 24.7% year over year to $2.24 billion. As a percentage of revenues, operating expenses rose 30 bps to 60.2%.
salesforce posted non-GAAP operating income of $682 million, up 33% year over year. Operating margin expanded 122 bps to 18.2%
Balance Sheet & Cash Flow
salesforce exited the reported quarter with cash, cash equivalents and marketable securities of $6.38 billion compared with $4.34 billion in the prior quarter.
As of Apr 30, 2019, total unearned revenues were $7.6 billion, up 22% on a year-over-year basis. salesforce generated operating cash flow of $1.97 billion and free cash flow of $1.81 billion.
Guidance
For fiscal 2020, revenues are predicted between $16.1 billion and $16.25 billion, marking 21-22% growth year over year. The company expects Salesforce.org to contribute approximately $150-$200 million in revenues in fiscal 2020.
However, strengthening of U.S. dollar relatively to GBP and the euro is likely to keep revenues as well as operating margins under pressure. The company anticipates more than $200 million of foreign exchange headwinds in the full fiscal.
However, the company raised its full-year earnings per share guidance to the range of $2.88-$2.90 per share from $2.54-$2.56 envisioned earlier. Operating cash flow is still forecast to increase 20-21% year over year.
Coming to fiscal second quarter, Salesforce.org is likely to generate approximately $40 million to $50 million revenues. Revenues are guided between $3.94 billion and $3.95 billion.
However, non-GAAP diluted earnings per share are anticipated in the range of 46-47 cents for the fiscal second quarter. Transaction expenses associated with the consolidation of Salesforce.org is an overhang.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="How Have Estimates Been Moving Since Then?” data-reactid=”27″>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 -64.21% due to these changes.
At this time, Salesforce.com has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Outlook” data-reactid=”36″>Outlook
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.
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