Looked forward to Salesforce (CRM) earnings. Knew enough to be unsure. Who is sure of anything these days? A great quarter? Really. Guidance? Not what we hoped for. Now the shares sell off a bit, and now we look for a spot to add. Right? Or maybe sell. We hate to add this far above nets basis. Is this the dip we waited for? Maybe. Maybe not. Let's explore.
The Quarter Reported
For the firm's fiscal first quarter, Salesforce reported adjusted EPS of $0.70. That line beat by a penny, but really was still earnings growth of -25%, and 16 cents of that 70 cents came by way of the firm's investment gain by virtue of Zoom Video (ZM) . Revenue growth was strong, up 30% to $4.87 billion. That was a beat. The firm spent a lot this quarter, as the pandemic spread, on employee safety and on supporting customers who themselves were going though public health crisis related issues. This put the hurt on adjusted gross margin, which dropped to 13.1%. The street was looking for something north of 16%. Operating cash flow also contracted 5%.
Core subscription/support based revenue remained strong, and grew 31%. Professional Services saw a 20% increase in sales. What we look for with a firm like Salesforce is current remaining performance obligations. This is what we call CPRO, and CPRO experienced a 23% increase to $14.5 billion, which was just about on the button in terms of meeting consensus. So, the business is strong. Expenses were higher, and oh yeah... guidance.
The firm revenue for the current quarter down to $4.89 billion to $4.9 billion. Wall Street was just above $5 billion on this. For the quarter, Salesforce now expects to see adjusted EPS land at $0.66 to $0.67 versus consensus of $0.75. For the full year, it's more of the same. Full year revenue now looks to be in the $20 billion area, producing EPS of $2.93 to $2.95. The industry had been closer to $20.75 billion, with EPS of $3.07-ish. Perhaps slightly scarier, Salesforce is reassessing the firm's revenue target of $34 billion to $35 billion for 2024. Obviously, the shares sold off overnight.
What I see is a stock that built a nice cup, as well as a valid handle. The problem for me is that on the attempted breakout, the shares failed precisely at pivot ($185), which is for now a mini post-crisis double top. I like Salesforce. I like Marc Benioff and his sense of social responsibility. My target price has been an even $200 based on past $164 pivot. My panic point has been $152. I really do not have to act at this point. The name is a winner for us, though certainly not a star. Given how many names have hit their target prices these past two weeks, the cash position is quite accidentally back to crisis levels. I can comfortably add to this name should this selloff become severe, and I think that's what I want to do.
This is the plan. I add on an approach of the May low of $165 and again at the 200 day SMA ($161). I then increase my panic point from $152 to the 50 day line at $159. That way, even with adds, I don't turn a winner into a loser.