Though analyst commentary on Salesforce.com (CRM) had become more cautious in the weeks leading up to its April quarter report, little was shared during either the cloud CRM software giant's earnings report or call to put investors on edge.
To recap: Salesforce's stock is up almost 4% after the company beat April quarter (fiscal first quarter) sales and EPS estimates, with revenue rising 24% annually and non-GAAP EPS beating by $0.05 after backing out a $0.27 accounting gain. The company's closely-watched billings metric (defined as revenue plus the sequential change in Salesforce's unearned revenue balance) rose 25% annually to $2.76 billion, easily topping a consensus of $2.58 billion, and the company's remaining performance obligation (RPO - its contract backlog) grew 22% to $24.9 billion, beating a $24.7 billion consensus.
Guidance wasn't amazing, but it was respectable -- particularly given that a strong dollar remains a headwind and Salesforce has a history of guiding conservatively. The company's July quarter and fiscal 2020 (ends in Jan. 2020) revenue guidance ranges were both slightly above consensus at their midpoints, with Salesforce forecasting 21% to 22% full-year sales growth. Full-year EPS guidance is a little below consensus after backing out last quarter's accounting gain, but that has much to do with near-term earnings headwinds related to Salesforce's $300 million deal to buy Salesforce.org, which resells the company's offerings to non-profits.
Other top-line numbers were also pretty good. On a constant currency (CC) basis, Americas, EMEA and Asia-Pac revenue rose 25%, 32% and 27%, respectively; all three growth rates are close to January quarter levels.
And as was the case in recent quarters, Salesforce only saw low-double-digit growth in subscription and support revenue for its age-old Sales Cloud platform for sales professionals, but saw stronger growth for other businesses. Service Cloud (customer support/engagement software) revenue grew 20%; Marketing and Commerce Cloud (marketing automation and e-commerce software) grew 33%; and "Platform and Other" revenue grew 22% after backing out $140 million in subscription/support revenue from API Management software firm MuleSoft, which Salesforce acquired in May 2018.
Clearly, the whole has become more than the sum of the parts here. It's not just the competitiveness of individual Salesforce products that has helped the company steadily gain CRM share at major enterprises from the likes of Oracle (ORCL) and SAP (SAP) in recent years. It's also the comprehensiveness of Salesforce's total product lineup, the size of its app and services ecosystems and its investments in things such asanalytics, machine learning and educational tools that support or integrate with multiple CRM products.
Meanwhile, chairman/co-CEO Marc Benioff downplayed macro worries on the earnings call. "Maybe this is not a 2018 economy, but it's a 2017 economy," he said, while noting Salesforce has very little Chinese exposure. Benioff also once more talked up the increased enthusiasm he he's been seeing among C-suite execs for large-scale "digital transformation" projects.
Much like a number of other high-flying cloud/SaaS software firms, arguably the biggest concern right now for someone looking to invest in Salesforce isn't the company's execution or the IT spending environment it's dealing with, but the fact that its multiples leave a pretty small margin of error. At the moment, Salesforce sports an enterprise value (market cap minus net cash) equal to 28 times a fiscal 2021 free cash flow consensus of $4.18 billion.
At such multiples, Wall Street is likely to react harshly to any meaningful execution issues or worsening in the enterprise software spending environment. On the other hand, if Salesforce's execution and IT spending trends remain as healthy as they are right now, or close to it, the company should be able to keep investors happy.