It has been about a month since the last earnings report for Salesforce.com (CRM). Shares have added about 0.7% in that time frame, underperforming 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 drivers.
Salesforce Q3 Earnings & Revenues Top Estimates, Up Y/Y
Salesforce delivered better-than-expected results for third-quarter fiscal 2021. The company’s fiscal third-quarter non-GAAP earnings of $1.74 per share handily beat the Zacks Consensus Estimate of 74 cents. Quarterly earnings soared 132% year over year mainly on higher revenues and a benefit of 86 cents per share from mark-to-mark accounting required by ASU 2016-01.
Salesforce’s quarterly revenues of $5.42 billion climbed 20%, year on year, surpassing the Zacks Consensus Estimate of $5.25 billion. The top-line figure also improved 19% 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-expected performance during the fiscal third quarter.
Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support increased about 20% from the year-earlier period to $5.09 billion. Professional Services and Other revenues climbed 22% to $334 million.
Sales Cloud revenues grew 12%, year over year, to $1.31 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 21% to $1.38 billion. Moreover, Marketing & Commerce Cloud revenues jumped 25% to $804 million. Salesforce Platform and Other revenues were up 24% to $1.59 billion.
Geographically, the company registered revenue growth at cc of 17% in the Americas (69% of total revenues), 20% in the Asia Pacific (10%), and 26% in Europe and Middle East Asia or EMEA (21%) on a year-over-year basis.
Salesforce’s gross profit came in at $4.03 billion, up 19.1% from the prior-year quarter. However, gross margin contracted 100 basis points (bps) to 74%.
Salesforce recorded a non-GAAP operating income of $1.07 billion, up 22.8% year on year. Operating margin expanded 40 bps to 19.8% on efficient cost management. Operating expenses flared up 17.3% year over year to $3.19 billion.
Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $9.5 billion compared with the $9.3 billion recorded at the end of the previous quarter. The company generated an operating cash flow of $339 million in the fiscal third quarter.
As of Oct 31, 2020, remaining performance obligation, which reflects future revenues under contract, was $15.3 billion, up 20% on a year-over-year basis.
Buoyed by the stronger-than-expected third-quarter results, Salesforce raised its revenue outlook for fiscal 2021 to $21.10-$21.11 billion from the $20.7-$20.8 billion projected earlier. The company now expects full-fiscal non-GAAP earnings per share to come in at $4.62-$4.63, up from the earlier expectation of $3.72-$3.74.
Operating cash flow is still projected to grow between 12% and 13% on a year-over-year basis.
Coming to the fiscal fourth quarter, revenues are estimated between $5.665 billion and $5.675 billion, calling for 17% growth, year on year. Furthermore, Salesforce anticipates non-GAAP earnings per share in the band of 73-74 cents for the current quarter.
Additionally, the company initiated a sales outlook for first-quarter and fiscal 2022. For the fiscal first quarter, Salesforce projects revenues at $5.680-$5.715 billion and between $25.45 billion and $25.55 billion for fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -24.4% due to these changes.
Currently, Salesforce.com has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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