Salesforce Stock Analysis

TLDR: Bullish

Overview

Salesforce, Inc. (CRM) provides customer relationship management software focused on sales, customer service, marketing automation, and analytics. It remains the #1 in CRM (Customer Relationship Management) software for the 9th year in a row, according to the IDC’s Software Tracker.

Earnings Highlights

• First Quarter Revenue of $7.41 Billion, up 24% year-over-year.
• For Q1, non-GAAP operating margin was 17.6%. Q1 GAAP EPS was $0.03 and non-GAAP EPS was $0.98.
• For Q1, operating cash flow was $3.7 billion, up 14% year-over-year.
• The management team is not seeing any material impact from the broader economic world. Demand is still very strong.

Future Outlook

• Second Quarter Revenue Guidance of $7.69 Billion to $7.70 Billion, up ~21% Year-Over-Year
• Full Year Revenue Guidance to $31.7 Billion to $31.8 Billion, up ~20% Year-Over-Year
• Current remaining performance obligation, or CRPO, was up 21%
• Expect GAAP loss per share from negative $0.03 to negative $0.02

Revenue Details

• Year-over-year solid growth across every region in the quarter, 21% in the Americas, 33% in EMEA, and 24% in APAC
• Subscription and support revenues for the quarter were $6.86 billion, an increase of 24% year-over-year.
• Professional services and other revenues for the quarter were $0.56 billion, an increase of 30% year-over-year.
• Remaining performance obligation is $42 billion, which represents all future revenue under contract.
• Sales Cloud revenue accelerated to 18% growth year-over-year,
• Service Cloud grew at 17% year-over-year to $1.76 billion in revenue in the quarter.
• Marketing and Commerce stood 22% year-over-year in the quarter
• The number of Slack customers that spent more than $100,000 annually, grew 45% year-over-year.

Financial Health

• Operating Margin: First quarter GAAP operating margin was 0.3%. First quarter's non-GAAP operating margin was 17.6%.
• For Q1, operating cash flow was $3.7 billion, up 14% year-over-year. CapEx was $179 million, resulting in a free cash flow of $3.5 billion, up 14% year-over-year.
• $14 billion of cash on the balance sheet.

Risks

• Operating expenses increased (4.07B -> 5.35B) +31%, higher than revenue (+24%) and gross profit (+22%) increase.
• GAAP margin is still not consistently profitable.
• Besides slack, the next growth point is not clear. Marc Benioff said they are not planning any acquisition anytime soon.
• FX headwinds represent an incremental $300 million year-over-year headwind on top of the $300 million, bringing the total year-over-year FX headwind to $600 million.

Catalysts

• Digital transformation remains a strong tailwind as the remote working culture is here to stay. Businesses continue focusing on improving efficiency.
• The synergy between different products could increase demands (i.e., Tableau and Slack could drive the markets for other products)
• Long history and comprehensive product portfolio give Salesforce advantages if its customers are doing vendor consolidation.

Conclusion:

Bullish

Salesforce has a solid and experienced management team led by the founder Marc Benioff. It is also riding the tailwinds of digital transformation with 20% revenue growth+. Although it has many competitors (i.e., Microsoft), it also has a robust switching-cost moat due to the nature of its business.