No doubt that this name, heck the entire software industry with the Dow Jones US Software Index down 14.3% year to date, but Salesforce (CRM) in particular, down 17.8% in 2022 had to show us something. Marc Benioff had to. That's exactly what they (he) did.
On Tuesday evening, Salesforce released the firm's fourth quarter financial results. The firm posted adjusted EPS of $0.84, which beat decisively expectations, on revenue generation of $7.33B. The revenue print also beat Wall Street, and was good for annual growth of 25.8%. Beyond the headlines, Current Remaining Performance Obligations, or CRPO, which is future revenue under contract expected to be recognized within 12 months, printed at $22B, up 22% year over year. Going broader, PRO, or Performance Remaining Obligation, which counts future revenue under contract without the one year timeline, increased 21% to $43.7B.
The numbers within the numbers also impressed. Adjusted operating margin landed at 15%, above expectations, while operating cash flow of $1.98B, despite being down from a year ago, handily beat what Wall Street had in mind.
Business Performance
Salesforce reports two main business segments:
Subscription and Support... which grew revenue 24.7% to $6.828B
Professional Services and Other... which grew revenue 46% to $498M.
The firm then breaks down the Subscription and Support segment into various clouds whose sales performance is then broken out for us:
Sales Cloud.... revenue increased 17% to $1.586B
Service Cloud... revenue increased 18% to $1.71B
Platform & Other (includes Slack)... revenue increased 53% to $1.35B.
Marketing & Commerce... increased revenue 20% to $1.046B
Data (includes Tableau & Mulesoft)... increased revenue 23% to $1.136B.
Guidance
Salesforce increased FY 2023 revenue guidance to $32B to $32.1B from $31.7B to $31.8B. Wall Street had been at $31.8B on this metric. The firm sees full year adjusted EPS at $4.62 to $4.64. For the current quarter, Salesforce expects to earn an adjusted $0.93 to $0.94 per share on revenue of $7.37B to $7.38B. The firm had previously guided the quarterly revenue number toward $7.215B to $7.25B. Wall Street had been looking for adjusted EPS of $0.99 on revenue of $7.26B.
Beyond those numbers, the firm sees full year operating margin printing at a GAAP 3.6% or an adjusted 20%, as well as operating cash flow that increases 21% to 22%. For the quarter, the firm expects CRPO to grow 21%.
The guidance is between solid and very good in my opinion. While investors are being asked to put up with some GAAP margin pressure as the firm digests its many recent acquisitions, there appears to be no corporate doubt about the firm's ability to grow sales in this environment. Just an FYI... Salesforce does little to no business in Russia or Ukraine.
Wall Street
I can find 12 sell-side analysts who are rated at five stars by TipRanks who have also opined on Salesforce since last night. There are nine "buy" or "buy equivalent" ratings, and there are three 'hold" or "hold equivalent" ratings. One of the holds, Scott Berg of Needham did not set a price target. The average target price of the other 11 analysts was $296.09, with a high of $360 (Kash Rangan of Goldman Sachs) and a low of $225 (Karl Keirstead of UBS).
The Chart
Yes, I am long CRM, so there's a chance that this is biased work, but it is my work, and it is my honest assessment. Readers will note that CRM bottomed last Thursday and has quickly reversed (at least for now) its downward trend which has been in place since early November. When placing the Fibonacci retracement model on this chart, I took the liberty of adding the less closely watched 23.6% and 78.6% retracement levels, so you have them all. The charting service I use for these articles does not offer those on its model.
We'll note that CRM retook its 23.6% Fib level ($214.49) on Monday and held the level on Tuesday despite selling off a bit. I saw the shares trading around $216 earlier Wednesday. If that optimism holds throughout the day, then CRM will also retake its 21 day EMA ($210.91) and set its sights on the 50 day SMA at $226.32 and the three gaps (in blue) left by CRM on the way down. The stock would need to make a run at that 78.6% Fib level ($284.51) in order to take back all three. Good thing, the shares are nowhere near being overbought.
Salesforce
- Target Price: $271 (for now, I do want all three gaps)
- Pivot: $226 (50 day SMA)
- Panic: $182 ( a break of last week's low)
