A month has gone by since the last earnings report for Salesforce.com (CRM). Shares have added about 3.8% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Salesforce Beats on Q2 Earnings & Revenues, Raises FY22 View
Salesforce delivered better-than-expected results for second-quarter fiscal 2022. The company’s fiscal second-quarter non-GAAP earnings of $1.48 per share handily beat the Zacks Consensus Estimate of 91 cents. Quarterly earnings increased 3% year over year mainly on higher revenues and benefits of 43 cents per share from mark-to-mark accounting of the company’s strategic investments on non-GAAP tax rate of 21.5%.
Salesforce’s quarterly revenues of $6.34 billion climbed 23%, year on year, surpassing the Zacks Consensus Estimate of $6.23 billion. The top-line figure also improved 21% in constant currency (cc).
The enterprise cloud computing solutions provider has been benefiting from the robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions resulted in the better-than-anticipated performance during the fiscal second quarter.
Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support (93% of total revenues) increased about 22% from the year-earlier period to $5.91 billion. Professional Services and Other (7% of total sales) revenues climbed 37% to $426 million.
Under the Subscription and Support segment, Sales Cloud revenues grew 15%, year over year, to $1.48 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 23% to $1.6 billion. Moreover, Marketing & Commerce Cloud revenues jumped 28% to $955 million. Salesforce Platform and Other revenues were up 24% to $1.88 billion.
Geographically, the company registered revenue growth at cc of 20% in the Americas (68% of total revenues), 25% in the Asia Pacific (10%), and 24% in Europe and Middle East Asia or EMEA (22%) on a year-over-year basis. The year-over-year increases across Asia Pacific and EMEA regions were modestly aided by integration of acquisitions into the company’s billing practices.
Salesforce’s gross profit came in at $4.73 billion, up 23% from the prior-year period. Moreover, gross margin improved 10 basis points (bps) to 74.6%.
Salesforce recorded a non-GAAP operating income of $1.29 billion, up 24% year on year. Operating margin expanded 20 bps to 20.4% on higher revenues, efficiencies from work from anywhere and focuses on disciplined spending. Operating expenses flared up 20% year over year to $4.40 billion.
Salesforce exited the fiscal second quarter with cash, cash equivalents and marketable securities of $9.65 billion compared with the $15.02 billion recorded at the end of the previous quarter. The company generated an operating cash flow of $386 million in the fiscal second quarter and $3.61 billion in the first half of fiscal 2022.
As of Jul 31, 2021, current remaining performance obligation, which reflects revenues under contract in the next 12 months, was $18.7 billion, up 23% on a year-over-year basis.
Raises Fiscal 2022 Guidance
Buoyed by stronger-than-expected results for the fiscal second quarter, Salesforce raised its guidance for fiscal 2022. The company raised the fiscal 2022 sales outlook to $26.2-$26.3 billion from the $25.9-$26 billion projected earlier. The updated guidance includes expected revenue contributions from the newly-acquired businesses Slack and Acumen of $530 million and $200 million, respectively.
Management also revised the fiscal 2022 non-GAAP operating margin forecast upward to 18.5% from 18%. The updated guidance includes a 150-basis point headwind from the Slack and Acumen acquisitions.
The company now projects fiscal 2022 non-GAAP earnings between $4.36 and $4.38 per share, up from its earlier guided range of $3.79-$3.81 per share. The update earnings outlook assumes merger & acquisitions headwinds of 51 cents per share.
For the fiscal second quarter, it projects total sales between $6.78 billion and $6.79 billion. Furthermore, Salesforce anticipates non-GAAP earnings per share in the band of 91-92 cents for the current quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 46.41% due to these changes.
At this time, Salesforce.com has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
salesforce.com, inc. (CRM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research