Salesforce (NYSE: $CRM) is a leading provider of customer relationship management products used by businesses for sales, marketing, and connecting with customers. It offers various features that assist businesses in automating their sales and marketing efforts, including email, lead capture, and lead scoring.
On Wednesday, May 29, 2024, after markets closed, Salesforce released its Q1 fiscal 2025 results to a negative market reaction after guidance came in below estimates.
Salesforce Q1 Results
For the first quarter of fiscal 2025, Salesforce reported revenue of $9.13 billion, an 11% Y/Y increase, below estimates of $9.17 billion. The adjusted EPS came in at $2.44, a 44.38% Y/Y increase, beating estimates of $2.38.
Net income saw a huge 670.35% Y/Y increase to $1.53 billion or $1.56 per share compared to $199 million a year ago. It reported a GAAP operating margin of 18.7% compared to 5% in Q123 and a non-GAAP operating margin of 32.1% compared to 27.6% the previous year.
Other Financial Highlights
Salesforce ended Q1 fiscal 2025 with $26.4 billion in Current Remaining Performance Obligation, a 10% Y/Y increase, while income from operations grew 314.81% Y/Y to $1.71 billion.
It ended the first quarter with $6.25 billion in operating cash, marking a 39% Y/Y increase, while free cash flow increased 43% Y/Y to 6.08 billion. At the end of the quarter, it had $1 billion in current debt and $36.5 billion in total liabilities.
The company stated it had returned $2.2 billion to shareholders via a share buyback program plus $0.4 billion in dividends.
Salesforce Revises Fiscal 2025 Guidance
For the second quarter, Salesforce expects revenue of $9.2 billion to $9.25 billion, a 7%-8% Y/Y increase, below the analysts’ forecast of $9.34 billion. It expects an adjusted EPS of $2.34 – $2.36 for the second quarter, below estimates of $2.40.
For fiscal 2025, Salesforce maintained its previous revenue forecast of $37.7 Billion to $38.0 Billion, an 8% – 9% Y/Y increase, below analysts’ forecast of $38.08 billion. However, its adjusted EPS forecast of $9.86 – $9.94 was above estimates of $9.76 at the midpoint.
The company lowered its full-year GAAP operating margin guidance to 19.9%, while it expects the non-GAAP operating margin to remain at 32.5%. It also lowered the Subscription & Support Revenue to grow at slightly below 10%, while the full-year operating cash flow growth forecast remained at 21% – 24%.
When asked why Salesforce had maintained its full-year revenue guidance, CFO Amy Weaver stated, “we do feel confident that we will be within our guidance range.”
Salesforce Bets on AI
During the earnings call, CEO Marc Benioff stated that Salesforce was poised to benefit from the “AI transformation.” He added that “the one thing that every enterprise needs to make AI work is their customer data, as well as the metadata that describes the data.”
According to Benioff, customer data and metadata are the “new gold” for enterprises seeking to train their AI model. He noted that Salesforce had “250 petabytes of this precious material.”
Salesforce (CRM) Stock Performance
Following the revenue and guidance miss, CRM slid 17.80% to $223.06 as of 09:31 AM EDT on Thursday morning. Before the results, CRM was up 6.05% YTD, and in the past 52 weeks, it had gained 24.10%, slightly below the 25.24% gain of the SPX.
Analysts’ Outlook on CRM
According to 33 stock analysts, Salesforce has an overall moderate buy rating. They forecast a wide range for the stock, with a high of $365 and a low of $240. Their average price target of $317.15 is a 16.76% upside based on the most recent closing price.
Should You Include Salesforce in Your Portfolio?
Salesforce’s recent double-digit slide was the market was reacting to Salesforce’s first revenue miss in quarterly results since 2006. The drop in sales growth is driven by the company’s focus on improving profits amid rising macroeconomic headwinds that have seen companies cut down on spending. To keep investors happy, Salesforce has boosted share buybacks and began dividend payouts.
One bright spot for Salesforce is AI. With the company owning a huge amount of high-quality data, it could prove to be a gold mine as more enterprises incorporate AI into their operations. Consequently, while Salesforce may underperform in the short term, it could potentially be a great stock to hold in the long term.
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