Categories Analysis, Technology

After strong Q3, can Salesforce (CRM) keep the momentum going?

The company raised the guidance for full-year operating margin and cash flow, to reflect the resilient demand for its products

Salesforce, Inc. (NYSE: CRM) reported strong third-quarter results this week, triggering a stock rally that marked one of the biggest single-day gains. The impressive performance reflects the continued strong demand for the company’s cloud-based offerings, with customers looking to take advantage of the combined integrated platform of CRM, data, and AI.

The San Francisco-headquartered customer relationship management platform’s stock has been on an upward spiral since last year and looks poised to set a new record. Around two years ago, CRM had reached an all-time high of about $310. The stock gained a whopping 85% so far this year, often outperforming the broad market.

Successful Model

The software-as-a-service model enables the company to better serve customers, and there has been a steady uptick in Subscription and Support revenues that account for more than 90% of the total business. The Data Cloud product, organically developed by the salesforce team and designed to add value to existing products, gained around 1,000 new customers in the past three months. Einstein GPT Copilot, an innovative suite of tools introduced by the company recently to help businesses deploy AI-powered applications, is being adopted widely by customers.

Buoyed by the healthy free cash flow of $1.37 billion at the end of the latest quarter, the management raised its 2024 cash flow growth guidance to 33%. Of late, there has been a sharp increase in high-value deals as more and more customers added new Salesforce products to the suite.

Earnings

Over the years, the tech firm’s earnings surpassed Wall Street’s expectations almost every quarter, including in the most recent quarter. Earnings surged 51% in the third quarter to $2.11 per share, helped by broad-based sales growth across all operating segments. Revenues climbed 11% to $8.72 billion and matched Wall Street’s expectations.

“As customers look for quick time-to-value solutions and productivity gains, we saw traction with our new Salesforce Starter offering with nearly 1,000 new logos added this quarter. As the No. 1 AI CRM, companies in every industry and geography like Fujitsu, Southwest Airlines, the ANZ Bank are turning to us as their trusted advisor to help them transform their business for the AI future. We’re seeing amazing energy across our ecosystem with our partners, GSIs and ISVs, who are looking to do – build more opportunities with us around our AI offerings,” said Salesforce COO Brian Millham at the earnings call.

Guidance

Anticipating the current momentum to extend into the final months of the year, the company forecasts revenue in the range of $9.18 billion to $9.23 billion and adjusted earnings per share in the $2.25-$2.26 range for the fourth quarter, which is well above analysts’ estimates and higher than the numbers recorded last year. Salesforce looks all set to end fiscal 2024 on a positive note, after shrugging off the slowdown it experienced in the first half. Early this year, the company announced a cost-cutting drive that included a major layoff, after sales and profitability were affected by weak demand due to a slowdown in enterprise spending.

In the past six months, shares of Salesforce consistently traded above its 52-week average. On Friday, the stock mostly traded higher, extending the post-earnings uptrend.

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