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Salesforce (CRM) Q3 Earnings & Revenues Top Estimates, Up Y/Y

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Salesforce (CRM - Free Report) delivered better-than-expected results for third-quarter fiscal 2021. The company’s fiscal third-quarter non-GAAP earnings of $1.74 per share handily beat the Zacks Consensus Estimate of 74 cents. Quarterly earnings soared 132% year over year mainly on higher revenues and a benefit of 86 cents per share from mark-to-mark accounting required by ASU 2016-01.

Salesforce’s quarterly revenues of $5.42 billion climbed 20%, year on year, surpassing the Zacks Consensus Estimate of $5.25 billion. The top-line figure also improved 19% in constant currency (cc).

The enterprise cloud computing solutions provider has been benefiting from the robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions resulted in the better-than-expected performance during the fiscal third quarter.

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Quarter in Detail

Coming to the company’s business segments, revenues at Subscription and Support increased about 20% from the year-earlier period to $5.09 billion. Professional Services and Other revenues climbed 22% to $334 million.

Sales Cloud revenues grew 12%, year over year, to $1.31 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 21% to $1.38 billion. Moreover, Marketing & Commerce Cloud revenues jumped 25% to $804 million. Salesforce Platform and Other revenues were up 24% to $1.59 billion.

Geographically, the company registered revenue growth at cc of 17% in the Americas (69% of total revenues), 20% in the Asia Pacific (10%), and 26% in Europe and Middle East Asia or EMEA (21%) on a year-over-year basis.

Salesforce’s gross profit came in at $4.03 billion, up 19.1% from the prior-year quarter. However, gross margin contracted 100 basis points (bps) to 74%.

Salesforce recorded a non-GAAP operating income of $1.07 billion, up 22.8% year on year. Operating margin expanded 40 bps to 19.8% on efficient cost management. Operating expenses flared up 17.3% year over year to $3.19 billion.

Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $9.5 billion compared with the $9.3 billion recorded at the end of the previous quarter. The company generated an operating cash flow of $339 million in the fiscal third quarter.

As of Jul 31, 2020, remaining performance obligation, which reflects future revenues under contract, was $15.3 billion, up 20% on a year-over-year basis.

Guidance

Buoyed by the stronger-than-expected third-quarter results, Salesforce raised its revenue outlook for fiscal 2021 to $21.10-$21.11 billion from the $20.7-$20.8 billion projected earlier. The company now expects full-fiscal non-GAAP earnings per share to come in at $4.62-$4.63, up from the earlier expectation of $3.72-$3.74.

Operating cash flow is still projected to grow between 12% and 13% on a year-over-year basis.

Coming to the fiscal fourth quarter, revenues are estimated between $5.665 billion and $5.675 billion, calling for 17% growth, year on year. Furthermore, Salesforce anticipates non-GAAP earnings per share in the band of 73-74 cents for the current quarter.

Additionally, the company initiated a sales outlook for first-quarter and fiscal 2022. For the fiscal first quarter, Salesforce projects revenues at $5.680-$5.715 billion and between $25.45 billion and $25.55 billion for fiscal 2022.

Salesforce to Acquire Slack

In a separate press release, Salesforce announced entering into a definitive agreement to acquire Slack Technology in a cash-stock deal worth $27.7 billion. Per the terms of the deal, Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce for each shares held. The transaction is expected to complete in the second quarter of fiscal 2022.

Zacks Rank & Stocks to Consider

Salesforce currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Arrow Electronics (ARW - Free Report) and Texas Instruments (TXN - Free Report) , both carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Arrow and Texas is currently pegged at 9.8% and 9.3%, respectively.

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