Salesforce, Inc. (CRM) released financial results for the company’s first quarter on Tuesday night. The results are solid. The firm posted adjusted EPS of $ 0.98 (GAAP EPS: $ 0.03) on revenue of $ 7.41B. Both the top and bottom line numbers on Wall Street lost, and the number of sales was good enough for year-on-year growth of 24.3% (+26% in the same currency). The GAAP Operating margin was only 0.3%, while the adjusted operating margin reached 17.6%.
Adjustments are made largely, as you will ask, based on the amortization of purchased intangibles (other businesses) and for stock -based compensation costs.
Operating cash flow increased 14% to $ 3.68B. The Outstanding Performance Obligation (future income under the contract has not yet been recognized), referred to as RPO … increased 20% annually to $ 42B, while the Current Outstanding Performance Obligation (income in the future under the contract is expected to be identified within 12 months), known as CPRO … increased by 21% (24% in the same currency) to $ 21.5B.
Performance Breakout
Subscription and revenue support by offering.
– Cloud Service revenue increased 16.9% (20% in the same currency) to $ 1.761B
– Sales Cloud revenue rose 17.5% (19% in the same currency) to $ 1.632B
– Platforms and More revenue rose 55.4% (58% in the same currency) to $ 1.419B
– Marketing and Commerce rose 21.7% (24% in the same currency) to $ 1.089B
– Data revenue increased 14.5% (15% in the same currency) to $ 955M
Revenue by geographical region.
– Americas revenue increased 21.4% (21% in the same currency) to $ 4.971B.
– Europe revenue increased 33.5% (39% in the same currency) to $ 1.738B.
– Asia-Pacific revenue increased 23.8% (32% in the same currency) to $ 702M.
Guidance
For the current quarter: The company projected second-quarter revenue of $ 7.69B to $ 7.7B, which is slightly below the consensus view of $ 7.77B. This estimate includes a $ 200M negative impact associated with currency exchange rates. The company sees GAAP EPS of $ -0.03 to $ -0.02 and adjusted EPS of $ 1.01 to $ 1.02. Wall Street is at about $ 1.14 in that number.
For the entire financial year: The company lowered its revenue projection from approximately $ 32B to $ 31.1B down to $ 31.7B to $ 31.8B. It is important to note here that the company is now considering the negative impact of foreign exchange of approximately $ 600M for the year. Salesforce raised its projection for the full -year GAAP operating margin from 3.6% to 3.8%. and its expected adjusted operating margin from 20% to 20.4%. Finally, Salesforce now sees FY GAAP EPS at $ 0.38 to $ 0.40, and adjusted EPS at $ 4.74 to $ 4.76. Wall Street is looking for approximately $ 4.66.
The CEOs
Chairman and Co-CEO Marc Benioff: “I personally was just in Sydney, Australia. I was in Tokyo. We were in Atlanta. We were in New York. And last week, we were in Davos, Switzerland. All that was in, I think the last 4 or 5 weeks .And we’ve really gotten all over the world. It’s great. We’ve met hundreds of customers. And I can tell you that our business-you can see it in the Q1 numbers, isn’t it, is incredibly healthy . “
Vice Chair and Co-CEO Bret Taylor: “We’re seeing strong demand in our clouds and industry. Our products are more relevant than ever. The trends of digital transformation that accelerated during the pandemic continue to advance.”
Wall Street
At this point, I’ve seen 16 analysts on the sales side who have both rated TipRanks five stars and have commented on Salesforce since these earnings were released. Accounting for all changes made, there are 14 “buy” or buy equivalent ratings and two “hold” or hold equivalent ratings. One of the holds (Scott Berg of Needham) did not set a target price, so there were 15 target prices.
The average target price across the 15 was $ 239.20, with a high of $ 315 (Philip Winlow of Credit Suisse) and a low of $ 190 (Karl Keirstead of UBS). Keirstead, by the way, is another “hold.” Leaving the high and low targets leaves us with an average target of $ 237.15.
My thoughts
Clearly, Salesforce is not seeing a drop in demand. The stock is still trading at 34 times forward looking earnings, which is expensive in this market, but may not be for a cloud-based software business that serves the business community. ServiceNow (NOW) still trades 63 times, Workday (WDAY) 45 times. I know, you can show me a Microsoft (MSFT) at 28 times or an Oracle (ORCL) at just 15 times, but those aren’t apple -to -apple comparisons, they come in “cloud -era change” with legacy businesses for better or worse.
I think Benioff is a brilliant leader who is adept at buying growth when he thinks he should or shouldn’t. That keeps revenue growth in the mid -20% back as far as the eye can see. I’m pretty comfortable owning Salesforce. In fact, Microsoft and Salesforce were the only two software names that survived my book cleanup earlier this spring, and Salesforce was the only one I added (in fact, doubled) going into the numbers.
Readers will see CRM trying to come out of the upper room of a six -month Pitchfork model. It also compares CRM against its own 50 -day SMA at $ 183. Although I don’t intend to make money here, I’m not adding. Lots of chart traffic at this level.
Now, in case the stock removes the model and the 50 day line in one move, momentum can be called buying as the PM wakes up and jumps. Therefore the 50 day line is a pivot point. I think the target price of $ 219 (the highest in late March/early April) is very realistic. I plan to add to the 21 day EMA (currently $ 167) given the pullback.
(Microsoft is a holding on Action Alerts PLUS club members. Want to be alerted before AAP buys or sells MSFT? Learn more now.)
Get an email alert whenever I write an article for Real Money. Click “+Follow” next to my byline in this article.
.