A month has gone by since the last earnings report for Salesforce.com (CRM). Shares have lost about 9.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Salesforce.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Salesforce Q4 Earnings & Revenues Beat Estimates, Up Y/Y
Salesforce delivered better-than-expected results for fourth-quarter fiscal 2021. The company’s fiscal fourth-quarter non-GAAP earnings of $1.04 per share handily beat the Zacks Consensus Estimate of 75 cents. Quarterly earnings jumped 58% year over year mainly on higher revenues and a benefit of 22 cents per share from mark-to-mark accounting required by ASU 2016-01.
Salesforce’s quarterly revenues of $5.82 billion climbed 20%, year on year, surpassing the Zacks Consensus Estimate of $5.68 billion. The top-line figure also improved 19% 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 fourth quarter.
Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support increased about 20% from the year-earlier period to $5.48 billion. Professional Services and Other revenues climbed 18% to $341 million.
Sales Cloud revenues grew 11%, year over year, to $1.36 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 19% to $1.45 billion. Moreover, Marketing & Commerce Cloud revenues jumped 27% to $869 million. Salesforce Platform and Other revenues were up 26% to $1.81 billion.
Geographically, the company registered revenue growth at cc of 18% in the Americas (69% of total revenues), 27% in the Asia Pacific (10%), and 24% in Europe and Middle East Asia or EMEA (21%) on a year-over-year basis.
Salesforce’s gross profit came in at $4.34 billion, up 19.5% from the prior-year quarter. However, gross margin contracted 30 basis points (bps) to 74.6%.
Salesforce recorded a non-GAAP operating income of $1.02 billion, up 36.6% year on year. Operating margin expanded 210 bps to 17.5% on efficient cost management. Operating expenses flared up 14.2% year over year to $3.56 billion.
Salesforce exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of $12 billion compared with the $9.5 billion recorded at the end of the previous quarter. The company generated an operating cash flow of $2.17billion in the fourth quarter and $4.8 billion in fiscal 2021.
As of Jan 31, 2021, current remaining performance obligation, which reflects future revenues under contract, was $18 billion, up 20% on a year-over-year basis.
Guidance
Buoyed by the stellar fiscal fourth-quarter results, Salesforce raised its revenue outlook for first-quarter and fiscal 2022.
For the fiscal first quarter, it now projects total sales between $5.875 billion and $5.885 billion, up from the previous guidance of $5.680-$5.715 billion. Furthermore, Salesforce anticipates non-GAAP earnings per share in the band of 88-89 cents for the current quarter.
For fiscal 2022, the company raised its sales outlook to $25.65-$25.75 billion from the $25.45-$25.55 billion projected earlier. It estimates earnings in the range of $3.39-$3.41 per share for the fiscal year. Additionally, management projects non-GAAP operating margin of 17.7%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 68.97% due to these changes.
VGM Scores
At this time, Salesforce.com has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Salesforce.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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