Wall Street’s estimates for the second quarter were exceeded on Salesforce, maintaining a 20% sales increase from the first quarter. However, he has called for caution on consumer spending, according to Brian Sozzi at Yahoo Finance.
This comes after a stellar quarter for Salesforce several months ago as the company fended off an onslaught from activist investors, cut costs to improve margins and promoted new AI initiatives.
Shares fell 6% in early trading on Thursday.
“Better than expected, but a challenging sign for the future,” Guggenheim analyst John Defucci wrote in a research note.
Wedbush analyst Dan Ives took a different view in a note of his own.
“Overall, despite the stock’s knee-jerk weakness after hours to print, we see Salesforce as a leader at current levels and one of the most attractive software names in this context, along with Benioff & Co. . Said.
Here is a summary of earnings:
- Net sales: increased +11% year-over-year to $8.25 billion versus the $8.18 billion estimate
- Current remaining performance obligations (CRPOs): $24.1 billion versus $23.86 billion estimated
- Adjusted Operating Margin: 27.6% Vs. Estimates of 17.6% and 25.5% a year ago
- Adjusted diluted EPS: $1.69 vs. Last year’s estimate of 0.98 cents and $1.61
These were the possibilities:
- Second Quarter Sales: $8.51 Billion to $8.53 Billion Versus Estimate of $8.49 Billion
- Second Quarter Adjusted EPS: $1.89 to $1.90 vs. $1.70 Estimate
- Full-year sales: $34.5 billion to $34.7 billion versus the $34.63 billion estimate (reiterated)
- Full-year EPS: $7.41 to $7.43 (was: $7.12 to $7.14) versus the $7.15 estimate
What caught your attention?
The company will hold an “AI Investor Day” on June 12.
Chief Financial Officer Amy Weaver pointed to weaker sales in the high-tech and financial services sectors on the earnings call.
Sales in the US grew only 10%, partly due to weak demand in the mentioned regions.
Professional services revenue was $605 million, up 9% year-over-year (as noted by Guggenheim’s Diffucci), with growth slowing from 20% to 35% over the past four quarters.
Operating cash flow was $4.49 billion, topping the consensus of $3.6 billion.
The company repurchased shares worth $2.1 billion in the quarter. About $6 billion has been bought back under a new plan announced in August 2022.
The AI term “GPT” was mentioned 33 times in Salesforce’s earnings call.
What has Wall Street said?
Tyler Radke, Citi analyst (Maintain rating with $230 price target):
“Sales force gains were strong but did not meet high expectations. Top-line KPIs (cRPO and revenue) were above guidance, but by much higher magnitudes.” Slight upside (1 pt. versus 3-5 pt. beat last quarter) with full year revenue unchanged.”
“Q1 presented more headwinds than Q4 with increased attrition and some sluggishness in the US (particularly in Slack + Marketing/Commerce),” Radke said. Contributed to upside, while the overall outlook on EPS/Operating Cash Flow was raised. We were impressed by Salesforce’s progress in driving efficiencies and we admit we missed out. 70%+ recovery from 52 week low.”
“With Salesforce up +68% year-over-year,” Radke continued, “signs of weak incremental demand and potential moderation of margin expansion/strong second half investments, we maintain our neutral rating.”
Jay Parker Lane, Stifel analyst (rated Buy with $250 price target):
“Shares of Salesforce traded down nearly 6% despite the company gaining momentum and growth in its earnings and cash flow metrics,” Parker Lane said. “While first quarter revenue beat consensus and the company offered a healthy outlook for the second quarter, the outlook for FY24 remains unchanged as a result of the uncertain macro environment, which continues to impact transactional revenue streams and the professional services business.” affects.”
Parker Lane added, “In addition, management expressed its belief that we are entering an AI ‘supercycle’ as the next technology development cycle following the rapid acceleration of digital transformation projects during COVID.” Will Work.” “We believe that Salesforce has so far demonstrated a strong commitment to developing and integrating leading AI technologies, and we look forward to greater clarity on the path to monetization in the coming quarters.”
Brent Thill, Jefferies analyst (Buy rating with $250 price target):
Thill wrote, “Salesforce made a strong impression with CRPO (current balance performance obligations) growth of 12%, driven by weakness in the transactional business (30-50% reserves) versus Wall Street’s 11% increase.” Hui.”
“AI was the main focus, mentioned 72 times in the finished script,” Thill said. “Despite $77 million in sales in the first quarter, Salesforce maintains 10% guidance for 2024 due to weakness in professional services. Salesforce raises guidance for 2024 to 28% (550 basis points of leverage) above estimates.” Polaris $10 plus earnings remain. Strong in calendar year 2025, implying a $200-$250 stock at 20-25x.”
Dan Ives, Wedbush analyst (Outstanding rating with $240 price target):
“AI is the name of the game for Salesforce, the poker chips are on the table,” Ives said. “With AI taking the world by storm, Salesforce is refocusing its efforts on the AI front of its product offering with the goal of integrating artificial intelligence and generative AI into multiple areas of its product base. Launched a vision for AI and a plan to revolutionize the software space by creating the intersection between AI, data and Salesforce.”
“In addition,” Ives continued, “the company will integrate Generative AI into Einstein, building out Einstein GPT, as well as other products in its broader CRM portfolio. Salesforce will host AI Day in New York on June 12. That We look forward to participating and seeing more details about AI Vision. For now, Salesforce is focused on its expense management, core innovations, productivity improvements and profitable growth enhancements.”
Salesforce is trading in the green at $211.55, but with a bearish margin, and remains well below the 70-period moving average price. Meanwhile, EI indicators are practically faster.