Is Salesforce (CRM) Positioned for Strong Post-Earnings Growth Salesforce (CRM) is set to release its fiscal 2025 first-quarter results tomorrow. Solid demand for its innovative product offerings, strategic partnerships, and acquisitions continues to be key drivers of the...
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Salesforce (CRM) is set to release its fiscal 2025 first-quarter results tomorrow. Solid demand for its innovative product offerings, strategic partnerships, and acquisitions continues to be key drivers of the company's success. So, let's analyze whether CRM is positioned for robust growth after its earnings release. Read on to know more….
Salesforce, Inc. (CRM), a leading Customer Relationship Management (CRM) technology provider, is scheduled to report its first-quarter financial results on May 29, 2024, after market close. Analysts expect the company's EPS and revenue for the quarter (ended April 2024) to increase 40.5% and 10.9% year-over-year to $2.37 and $9.15 billion, respectively.
Moreover, CRM has an impressive earnings surprise history, having topped the consensus revenue and EPS estimates in each of the trailing four quarters.
2023 has been an outstanding year of transformation for Salesforce, with robust performance across all its key metrics, including record cash flow and margin growth. Its free cash flow for the year was $9.50 billion, up 50% year-over-year. Also, the company's total remaining obligation for the fourth quarter rose 17% year-over-year to $56.90 billion.
Further, CRM unveiled new innovative solutions like Einstein 1 Marketing and Commerce Innovations to its portfolio. It also enhanced its existing offerings with an extended strategic partnership with International Business Machines Corporation (IBM) during the last reported quarter.
"With our trusted, unified Einstein 1 Platform, we're incredibly well positioned to build on our success and capitalize on the massive surge in tech spending expected over the coming years, delivering an unprecedented level of intelligence to our customers as AI transforms every company and industry," said Marc Benioff, CRM's Chair and CEO.
Notably, Salesforce initiated its first-ever cash dividend of $0.40 per share of its outstanding common stock, paid on April 11, 2024, to stockholders of record as of the close of business on March 14, 2024. The company also expressed its intention to pay a cash dividend on a quarterly basis going forward. Also, the company increased its share buyback plan by $10 billion.
According to its fiscal 2025 first-quarter guidance, CRM expects total revenue between $9.12 billion and $9.17 billion, indicating an increase of 11% year-over-year. The company's non-GAAP EPS is expected to range from $2.37 to $2.39.
For the full year 2025, the company projects its total revenue to be between $37.70 billion and $38 billion, with a year-over-year growth of 9%. Its subscription & support revenue year-over-year growth is expected to be 10%, while its non-GAAP EPS is expected to range from $9.68 to $9.76. CRM's operating cash flow is expected to grow from 21% to 24% in the year.
Shares of CRM have surged 21.4% over the past six months and 30.2% over the past year to close its last trading session at $272.29.
Let's look at factors that could influence CRM's performance in the upcoming months.
Positive Recent Developments
On May 22, CRM expanded its Einstein Copilot capabilities by introducing new features for marketers and merchants, which helps businesses of all sizes with daily marketing and merchandising tasks. It allows marketers and merchants brands to automatically generate campaign briefs, personalized content, and promotions from their trusted data.
The company also introduced new tools to unify business and commerce data, along with a new AI-powered personalization decision engine to help companies personalize customer interactions at every touchpoint using data from any source.
On May 21, CRM and IBM expanded their strategic partnership to bring together IBM watsonx AI and Data Platform capabilities with the CRM Einstein 1 Platform for greater customer choice and flexibility in AI and data deployment. It will enable zero-copy data integration between IBM watsonx and Salesforce Data Cloud and offer a secure and cost-effective way for connecting data.
With this expanded relationship, CRM joins the AI Alliance, bolstering its commitment to responsible AI and continuing to provide customers with trusted and reliable AI tools.
Robust Financials
CRM's total revenues increased 10.8% year-over-year to $9.29 billion during the fourth quarter that ended January 31, 2024. Its gross profit grew 13.6% from the year-ago value to $7.14 billion. The company's non-GAAP income from operations of $2.92 billion indicates growth of 19.3% from the prior year's quarter.
In addition, the company's non-GAAP net income came in at $2.25 billion or $2.29 per share, up 35.9% and 36.3% year-over-year, respectively. Its free cash flow increased 26.7% from the year-ago value to $3.26 billion. Also, CRM's cash and cash equivalents stood at $8.47 billion as of January 31, 2024, compared to $7.02 billion as of January 31, 2023.
Solid Historical Growth
CRM's revenue and EBITDA have grown at respective CAGRs of 17.9% and 40.8% over the past three years. The company's EBIT has increased 136.2% over the same timeframe, while its normalized net income and total assets have improved at CAGRs of 151.4% and 14.6%, respectively.
Favorable Analyst Estimates
Analysts expect CRM's revenue for the second quarter (ending July 2024) to increase 8.6% year-over-year to $9.34 billion. The consensus EPS estimate of $2.40 for the ongoing quarter reflects a 13.1% year-over-year improvement. For the fiscal year ending January 2025, its revenue and EPS are expected to grow 9% and 19.2% year-over-year to $38.01 billion and $9.79, respectively.
Additionally, Street expects the company's revenue and EPS for the fiscal year 2026 to increase 10.4% and 13.4% year-over-year to $41.95 billion and $11.11, respectively.
High Profitability
CRM's trailing-12-month gross profit margin and EBIT margin of 75.50% and 17.21% are 52.1% and 267.4% higher than the respective industry averages of 49.63% and 4.68%, respectively. Its trailing-12-month net income margin of 11.87% is considerably higher than the industry average of 2.63%.
Furthermore, the stock's trailing-12-month ROCE, ROTC, and ROTA of 7.01%, 5.12%, and 4.14% compare to the industry averages of 3.91%, 2.57%, and 1.42%, respectively. Similarly, its trailing-12-month levered FCF margin of 33.14% favorably compares to the industry average of 10.12%.
POWR Ratings Reflect Promise
CRM's solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a B grade for Growth, in sync with its impressive historical growth and solid financial performance in the last reported quarter.
In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability.
CRM is ranked #17 in the 137-stock Software - Application industry.
Beyond what I have stated above, we have also given CRM grades for Sentiment, Value, Momentum, and Stability. Get access to all the CRM Ratings here.
Bottom Line
CRM is due to report its financial results for the first quarter of fiscal 2025 on May 29. Analysts appear bullish about the company's growth prospects, driven by robust demand for its innovative product offerings, strategic partnerships, and acquisitions. Moreover, the board of directors initiated a quarterly dividend of $0.40 per share and raised its share repurchase program by $10 billion.
Given CRM's solid financials, accelerating profitability, and promising growth outlook, this software stock could be an ideal buy now.
How Does Salesforce, Inc. (CRM) Stack Up Against Its Peers?
While CRM has an overall POWR Rating of B, investors could also check out these other stocks within the Software - Application industry with A (Strong Buy) or B (Buy) ratings: WalkMe Ltd. (WKME), Yalla Group Ltd. ADR (YALA), and SS&C Technologies Holdings Inc. (SSNC).
For exploring more A and B-rated software stocks, click here.
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CRM shares fell $0.68 (-0.25%) in premarket trading Tuesday. Year-to-date, CRM has gained 3.61%, versus a 11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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