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Salesforce (CRM) Q3 Earnings and Revenues Beat Estimates
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Salesforce (CRM - Free Report) reported strong financial results for the third quarter of fiscal 2023, wherein its revenues and earnings surpassed the respective Zacks Consensus Estimate and marked a solid year-over-year improvement as well.
Despite reporting better-than-expected third-quarter results, shares of this enterprise cloud computing solution provider plunged 6.9% in Wednesday’s extended trading session after the company provided a lower-than-expected revenue forecast for the fourth quarter.
Before delving deeper into guidance, let’s discuss the third-quarter performance.
Salesforce’s third-quarter fiscal 2023 non-GAAP earnings of $1.40 per share beat the Zacks Consensus Estimate of $1.21. The quarterly earnings included a benefit of 2 cents per share from the mark-to-mark accounting of CRM’s strategic investments at a non-GAAP tax rate of 25%. Moreover, non-GAAP earnings soared 10% from the year-ago quarter’s earnings of $1.27 per share.
Salesforce’s quarterly revenues of $7.84 billion climbed 14% year over year, surpassing the Zacks Consensus Estimate of $7.81 billion. The top line also improved 19% in constant currency (cc).
The company has been benefiting from the robust demand environment as customers are undergoing a major digital transformation. Thus, the rapid adoption of its cloud-based solutions resulted in the better-than-anticipated performance in the fiscal third quarter.
Coming to CRM’s business segments, revenues from Subscription and Support (92% of the total revenues) increased 13% from the year-earlier period to $7.23 billion. Professional Services and Other (8% of total sales) revenues climbed 25% to $604 million.
Under the Subscription and Support segment, Sales Cloud revenues grew 12% year over year to $1.7 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, also improved 12% to $1.9 billion.
Marketing & Commerce Cloud revenues jumped 12% to $1.1 billion. Salesforce Platform and Other revenues were up 18% to $1.5 billion. Also, revenues from Data increased 13% year over year to $1 billion.
Geographically, Salesforce registered revenue growth of 16% in America (68.5% of the total revenues), 14% in the Asia Pacific (9.3%) and 10% in the EMEA (22.2%) on a year-over-year basis.
Salesforce’s gross profit came in at $5.75 billion, up 14.5% from the prior-year period. However, the gross margin remained flat at 73%.
Salesforce recorded a non-GAAP operating income of $1.78 billion, up 30.9% year over year. Moreover, the non-GAAP operating margin expanded 290 bps to 22.7% due to lower operating expenses as a percentage of total sales. Operating expenses as a percentage of revenues declined to 67% from 72% in the year-ago quarter.
Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $11.9 billion, down from the $13.5 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $313 million and free cash flow of $115 million in the third quarter. In the first nine months of fiscal 2023, the company generated operating and free cash flow of $4.32 billion and $3.75 billion, respectively.
As of Oct 31, 2022, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $20.9 billion, up 11% on a year-over-year basis. In the third quarter, the company bought back shares worth $1.7 billion.
Guidance Update
Salesforce provided fourth-quarter guidance and updated the outlook for fiscal 2023. For the fiscal fourth quarter, Salesforce projects total sales between $7.932 billion and $8.032 billion (midpoint $7.982 billion), which fell short of the Zacks Consensus Estimate of $8 billion at the midpoint.
The revenue guidance includes a $250-million negative impact of unfavorable currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $1.35-$1.37 for the current quarter.
For fiscal 2023, Salesforce reiterated its revenue guidance range of $30.9-$31 billion. The company forecast that the stronger U.S. dollar against other major currencies would have a $900-million negative impact on total revenues.
The company increased its non-GAAP earnings guidance to the $4.92-$4.94 per share range from the $4.71-$4.73 band projected earlier. It increased the non-GAAP operating margin forecast for the fiscal year to 20.7% from 20.4%. However, CRM reduced the year-over-year operating cash flow growth projection to approximately 16% from the earlier guidance range of 16-17%.
Zacks Rank & Key Picks
Currently, Salesforce carries a Zacks Rank #3 (Hold). Shares of CRM have decreased 36.9% year to date (YTD).
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Salesforce (CRM) Q3 Earnings and Revenues Beat Estimates
Salesforce (CRM - Free Report) reported strong financial results for the third quarter of fiscal 2023, wherein its revenues and earnings surpassed the respective Zacks Consensus Estimate and marked a solid year-over-year improvement as well.
Despite reporting better-than-expected third-quarter results, shares of this enterprise cloud computing solution provider plunged 6.9% in Wednesday’s extended trading session after the company provided a lower-than-expected revenue forecast for the fourth quarter.
Before delving deeper into guidance, let’s discuss the third-quarter performance.
Salesforce Inc. Price, Consensus and EPS Surprise
Salesforce Inc. price-consensus-eps-surprise-chart | Salesforce Inc. Quote
Third-Quarter Fiscal 2023 Performance
Salesforce’s third-quarter fiscal 2023 non-GAAP earnings of $1.40 per share beat the Zacks Consensus Estimate of $1.21. The quarterly earnings included a benefit of 2 cents per share from the mark-to-mark accounting of CRM’s strategic investments at a non-GAAP tax rate of 25%. Moreover, non-GAAP earnings soared 10% from the year-ago quarter’s earnings of $1.27 per share.
Salesforce’s quarterly revenues of $7.84 billion climbed 14% year over year, surpassing the Zacks Consensus Estimate of $7.81 billion. The top line also improved 19% in constant currency (cc).
The company has been benefiting from the robust demand environment as customers are undergoing a major digital transformation. Thus, the rapid adoption of its cloud-based solutions resulted in the better-than-anticipated performance in the fiscal third quarter.
Coming to CRM’s business segments, revenues from Subscription and Support (92% of the total revenues) increased 13% from the year-earlier period to $7.23 billion. Professional Services and Other (8% of total sales) revenues climbed 25% to $604 million.
Under the Subscription and Support segment, Sales Cloud revenues grew 12% year over year to $1.7 billion. Revenues from Service Cloud, one of the company’s largest and fastest-growing businesses, also improved 12% to $1.9 billion.
Marketing & Commerce Cloud revenues jumped 12% to $1.1 billion. Salesforce Platform and Other revenues were up 18% to $1.5 billion. Also, revenues from Data increased 13% year over year to $1 billion.
Geographically, Salesforce registered revenue growth of 16% in America (68.5% of the total revenues), 14% in the Asia Pacific (9.3%) and 10% in the EMEA (22.2%) on a year-over-year basis.
Salesforce’s gross profit came in at $5.75 billion, up 14.5% from the prior-year period. However, the gross margin remained flat at 73%.
Salesforce recorded a non-GAAP operating income of $1.78 billion, up 30.9% year over year. Moreover, the non-GAAP operating margin expanded 290 bps to 22.7% due to lower operating expenses as a percentage of total sales. Operating expenses as a percentage of revenues declined to 67% from 72% in the year-ago quarter.
Salesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $11.9 billion, down from the $13.5 billion recorded at the end of the previous quarter.
CRM generated operating cash flow of $313 million and free cash flow of $115 million in the third quarter. In the first nine months of fiscal 2023, the company generated operating and free cash flow of $4.32 billion and $3.75 billion, respectively.
As of Oct 31, 2022, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $20.9 billion, up 11% on a year-over-year basis. In the third quarter, the company bought back shares worth $1.7 billion.
Guidance Update
Salesforce provided fourth-quarter guidance and updated the outlook for fiscal 2023. For the fiscal fourth quarter, Salesforce projects total sales between $7.932 billion and $8.032 billion (midpoint $7.982 billion), which fell short of the Zacks Consensus Estimate of $8 billion at the midpoint.
The revenue guidance includes a $250-million negative impact of unfavorable currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $1.35-$1.37 for the current quarter.
For fiscal 2023, Salesforce reiterated its revenue guidance range of $30.9-$31 billion. The company forecast that the stronger U.S. dollar against other major currencies would have a $900-million negative impact on total revenues.
The company increased its non-GAAP earnings guidance to the $4.92-$4.94 per share range from the $4.71-$4.73 band projected earlier. It increased the non-GAAP operating margin forecast for the fiscal year to 20.7% from 20.4%. However, CRM reduced the year-over-year operating cash flow growth projection to approximately 16% from the earlier guidance range of 16-17%.
Zacks Rank & Key Picks
Currently, Salesforce carries a Zacks Rank #3 (Hold). Shares of CRM have decreased 36.9% year to date (YTD).
Some better-ranked stocks from the broader technology sector are Celestica (CLS - Free Report) , Zscaler (ZS - Free Report) and Blackbaud (BLKB - Free Report) . Celestica sports a Zacks Rank #1 (Strong Buy) at present, while Zscaler and Blackbaud each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Celestica’s fourth-quarter 2022 earnings has increased by 9 cents to 53 cents per share over the past 60 days. For 2022, earnings estimates have moved up 9.4% to $1.86 per share in the past 60 days.
CLS' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 11.8%. Shares of the company have increased 0.3% YTD.
The Zacks Consensus Estimate for Zscaler's second-quarter fiscal 2023 earnings has been revised 5 cents north to 26 cents per share over the past 90 days. For fiscal 2023, earnings estimates have moved a penny south to $1.17 per share in the past 30 days.
ZS’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 28.6%. Shares of the company have declined 58.5% YTD.
The Zacks Consensus Estimate for Blackbaud's fourth-quarter 2022 earnings has been revised 3 cents southward to 58 cents per share over the past 30 days. For 2022, earnings estimates have moved upward by 4 cents to $2.59 per share in the past 30 days.
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