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Salesforce (CRM) Beats on Q2 Earnings & Revenues, Raises FY22 View

A robust demand environment, rapid adoption of cloud-based solutions, and strategic acquisitions result in Salesforce's (CRM) better-than-anticipated...

This story originally appeared on Zacks

Salesforce CRM 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%.

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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.

salesforce.com, inc. Price, Consensus and EPS Surprise salesforce.com, inc. Price, Consensus and EPS Surprise

salesforce.com, inc. price-consensus-eps-surprise-chart | salesforce.com, inc. Quote

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.

Zacks Rank & Key Picks

Currently, Salesforce carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector include Microsoft MSFT, Cadence Design Systems CDNS and Texas Instruments TXN, all carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Microsoft, Cadence Design and Texas Instruments is currently pegged at 11.1%, 11.7% and 9.3%, respectively.

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