Salesforce (CRM) Earnings: What To Expect

The words, “There's always something happening at Salesforce,” on the company’s website are a true reflection of its journey so far. Salesforce, Inc. (CRM) has been on a roll, scaling new heights on the stock market, delivering robust growth numbers, forging partnerships, persisting in its buying spree, and achieving customer success. Salesforce has earned itself the epithet “Innovator of the Decade” by Forbes. And if that were nothing to go by, it's the “Most Admired Company in the World” and among the top “100 Best Companies to Work For.”

With all this in the backdrop (and high expectations), Salesforce will be announcing earnings results today after market close. Here’s a closer look at is a cloud computing company which was established in 1999. Specializing in customer relationship management, or CRM, its core business revolves around Software as a Service (SaaS) and Platform as a Service (PaaS). Its offerings include sales cloud, marketing cloud, commerce cloud, service cloud, community cloud, IoT cloud, analytics cloud, Salesforce Quip and the Salesforce Platform, previously known as app cloud.

Gartner projects the SaaS market to grow to $75.73 billion in 2020 from $38.56 billion in 2016 while the PaaS market is expected to more than double in size from $7.17 billion in 2016 to $14.79 billion in 2020.

Salesforce has grown at a healthy pace over the years. However, despite that, it wasn't profitable. A major reason for that has been its huge operating expenses with allocation towards marketing and sales as well as research and development. During FY13, 67% of its revenue was absorbed by these two areas. While the allocation hasn't changed much (61% during FY17), its revenue has grown at a rapid pace, pulling its net income out of the negative territory.

(Millions) FY13 FY14 FY15 FY16 FY17
Revenue $3,050.20 $4,071.00 $5,373.59 $6,667.22 $8,391.98
Net Income -$279.45 -$232.18 -$262.67 -$47.43 $179.63

Cash generated from operations totaled $2.2 billion during FY17, higher than $1.7 billion in FY16 and $1.2 billion in FY15, while the net cash flow was $448.2 million, $250.2 and $126.5 million during the three fiscals.

To strengthen its current market share and expand into newer markets, Salesforce is driving its way forward by innovation—both organically and through partnerships and acquisitions. It acquired six companies in 2015, followed by 11 in 2016 with one in 2017 so far to enhance its capabilities in artificial intelligence, machine learning and predictive analytics. In terms of spending, Demandware (now commerce cloud) involved a big sum. However, the growing demand and importance for digital commerce justifies the cost.

A recent survey, which highlights that 51% of global respondents consider digital commerce as the core foundation of their digital business transformation while 40% of the respondents acknowledge that their total revenue was generated through this channel. Going forward, such businesses are expected to increase their digital commerce budgets aggressively (at an average 21% year-on-year increase).

Given the current market scenario, Salesforce is expected to go slow on its buying spree and would instead enter strategic partnerships to expand its reach. One such crucial alliance was formed in March with IBM. With the partnership, IBM and Salesforce will bring together Watson and Einstein to enable faster, smarter decision-making and achieve greater customer success across industries, including weather, healthcare, financial services and retail.

Salesforce has very recently joined the Partnership on AI as one of the for-profit members. Partnership on AI is an initiative rolled out in September 2016 by Amazon, DeepMind/Google, Facebook, IBM, and Microsoft with an objective to address opportunities and challenges with AI technologies to benefit people and society.

Final Word

Salesforce is expected to continue its pace of growth to achieve its short-term and long-term targets. During Q1FY18, it expects a revenue growth of 22-23% year-on-year ($2.34 billion to $2.35 billion) while it projects its full-year FY18 revenue to cross $10 billion, which “puts Salesforce well on the path to reach $20 billion faster than any other enterprise software company.”

The biggest threat to Salesforce comes in the form of intensified competition from players such as Oracle, Adobe, and Microsoft. However, with its solid client base, expansion in international markets, innovative and holistic solutions for businesses, Salesforce should continue to move ahead steadily. Its stock is up 28.31% year-to-date and it currently has a market capitalization of $62.5 billion.

The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.

Stock returns and market capitalization as on May 17, 2017

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Prableen Bajpai

Prableen Bajpai is the founder and managing partner at FinFix Research and Analytics; an enterprise engaged in financial research, wealth management, training and financial literacy. She started her career in 2007 with a wealth management firm, where she spent over six years as the research head. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and holds a Bachelor (Honours) and Masters in Economics with a major in Econometrics and Macroeconomics.

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