Along with topping sales and EPS estimates, Salesforce.com (CRM) delivered better-than-expected backlog growth and offered a fairly positive view of near-term business trends.
On Tuesday afternoon, Salesforce reported July quarter (fiscal second quarter) revenue of $5.15 billion and -- excluding a $0.58/share boost related to a mark-up in the value of Salesforce's investment portfolio -- non-GAAP EPS of $0.86.
Revenue was officially up 29% annually, and (after backing out $375 million from Tableau Software, which was acquired in Aug. 2019) up 19% on an organic basis. EPS was up 30% excluding the accounting gain and topped a $0.67 consensus.
The cloud CRM software giant guided for October quarter revenue of $5.24 billion to $5.25 billion (up 16%) and non-GAAP EPS of $0.73 to $0.74. The revenue guidance is above a $5.02 billion consensus, but (due to elevated spending) the EPS guidance is below a $0.76 consensus.
For the whole of fiscal 2021 (ends in Jan. 2021), it's now guiding for revenue of $20.7 billion to $20.8 billion (up 21% to 22%) and (excluding the accounting gain) EPS of $3.14 to $3.16, above consensus estimates of $20.1 billion and $2.97. The fiscal 2021 outlook is still slightly below what Salesforce issued in February, albeit improved from what it issued in May.
Salesforce's stock rose 13.5% in after-hours trading to $245.16, making fresh highs in the process. A host of other cloud software firms, including Workday (WDAY) , ServiceNow (NOW) , Okta (OKTA) and Atlassian (TEAM) , are up moderately in after-hours trading.
A Pickup in Deal Activity
On Salesforce's earnings call, CFO Mark Hawkins said Salesforce saw better-than-expected new business generation last quarter, with quarterly business activity "consistent with historical trends." He also noted Salesforce saw a little less revenue attrition (i.e., churn) than expected, and that (in what might be a reference to Salesforce's recent deal with AT&T (T) ) the quarter benefited from payments stemming from a "large telecom transaction"
The new business activity helped Salesforce's remaining performance obligation (RPO - Salesforce's backlog of revenue that's under contract but hasn't yet been recognized) reach $30.6 billion -- officially up 21% annually, and up 14% excluding Tableau's $750 million contribution Current RPO (revenue under contract that's expected to be recognized in the next 12 months) rose 26% to $15.2 billion, easily beating guidance for 16% to 17% growth.
Hawkins did caution that Salesforce is still taking things a quarter at a time amid ongoing COVID-related uncertainty, and that its full-year guidance assumes only "modest new business growth."
Nonetheless, Salesforce's commentary about business trends was more positive overall than what software firms such as Datadog (DDOG) and Alteryx (AYX) recently shared about deal activity. Though reporting strength in some areas, these firms also indicated that some clients are avoiding expanding deployments of their software to conserve cash, with Alteryx also reporting elevated churn among smaller clients (this is less of an issue for Salesforce, which derives the lion's share of its revenue from enterprises).
Strong Numbers Across Segments and Regions
Annual revenue growth rates for Salesforce's business segments slowed a bit relative to the April quarter, but remained pretty healthy.
The Sales Cloud segment (it provides software for sales pros) saw revenue grow 13% annually to $1.28 billion, after growing 16% in the April quarter.
Service Cloud (customer support/engagement software) revenue rose 20% to $1.3 billion, after having grown 23% in the April quarter.
Marketing and Commerce Cloud (marketing automation and e-commerce software) revenue rose 21% to $746 million, after growing 23% on an organic basis in the April quarter.
Salesforce's July quarter performance by segment. Source: Salesforce.
Salesforce Platform and Other revenue (it covers the Heroku and Lightning app development platforms, along with Tableau) officially rose 66% to $1.51 billion, with non-Tableau businesses growing 25%.
Americas revenue rose 28% to $3.6 billion, EMEA revenue rose 36% to $1.07 billion and Asia-Pac revenue rose 23% to $485 million.
Spending Aggressively
Excluding a $166 million legal settlement in the year-ago period, Salesforce's GAAP operating expenses rose 31% annually to $3.66 billion. Sales/marketing spend accounted for $2.28 billion (62%) of this total.
In addition, Hawkins said on Salesforce's call that the company plans to "accelerate" its go-to-market (sales/marketing) and product (R&D) spending during the last two quarters of fiscal 2021, and by doing so pull forward spending originally planned for fiscal 2022. He added that Salesforce plans to redirect more resources to certain areas to "fuel growth," and to de-emphasize other fields that are "no longer as aligned" with business priorities.
