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For the fiscal second quarter, the company projects total revenues between $9.20 billion and $9.25 billion (midpoint $9.225 billion). The Zacks Consensus Estimate for revenues is pegged at $9.23 billion, which indicates an increase of 7.3% from the year-ago quarter’s reported figure.
CRM anticipates non-GAAP earnings per share in the band of $2.34-$2.36 for the second quarter. The consensus mark for non-GAAP earnings has been revised downward by a penny to $2.35 per share, which calls for a 10.9% increase from the year-ago quarter.
Image Source: Zacks Investment Research
Salesforce’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 4.5%.
Let’s see how things have shaped up before this announcement.
Factors Shaping Upcoming Results
Salesforce’s quarterly performance is likely to have benefited from the robust demand environment as customers are undergoing a major digital transformation. The customer relationship management software provider’s focus on introducing more aligned products per customer needs is expected to have boosted its top line in the quarter.
Furthermore, the growing demand for generative artificial intelligence (AI)-enabled cloud-based solutions is anticipated to have aided Salesforce’s top-line growth in the second quarter. The company is currently focusing on incorporating generative AI tools across its products to keep its business ahead of rivals.
Additionally, Salesforce’s second-quarter performance may have gained from its focus on building and expanding relationships with leading brands across industries and geographies. Also, significant growth opportunities in the public sector are expected to have been a tailwind in the fiscal second quarter.
Also, the acquisitions of Spiff and Airkit.ai are anticipated to have aided CRM’s top line during the to-be-reported quarter. Growth across its cloud service offerings — Sales, Service, Platform & Other, Marketing & Commerce and Data — is anticipated to have boosted Salesforce’s subscriptions and supported its revenues.
Our second-quarter revenue estimates for Sales, Service, Platform & Other, Marketing & Commerce and Data cloud services are pegged at $2.01 billion, $2.21 billion, $1.75 billion, $1.29 billion and $1.39 billion, respectively. We expect the company to report revenues from the Subscription and Support segment of approximately $8.64 billion and the Professional Services division of $585.8 million.
However, a decline in software spending by small and medium businesses amid the macroeconomic uncertainty due to the pandemic and geopolitical issues across different parts of the world may have affected Salesforce’s fiscal second-quarter top-line growth. Further, stiff competition from Oracle and Microsoft is a concern, along with forex headwinds.
However, the ongoing cost restructuring initiative, which includes trimming the workforce, is likely to have boosted Salesforce’s profitability in the second quarter. The company’s first-quarter non-GAAP operating margin expanded 450 basis points to 32.1%, mainly driven by an improved gross margin and the benefits of cost restructuring initiatives, which include the trimming of the workforce and a reduction in office spaces.
Price Performance & Valuation
Year to date, shares of Salesforce have declined 0.8%, underperforming the Zacks Computer – Software industry’s growth of 11.6%. The CRM stock has also underperformed its peers, including SAP SE (SAP - Free Report) , Oracle (ORCL - Free Report) and Microsoft (MSFT - Free Report) , which have registered a rise of 41.6%, 32.8% and 12.7%, respectively, YTD.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Salesforce offers investors at the current levels. CRM stock is trading at a discount with a forward 12-month P/S of 6.36X compared with the industry’s 8.13X.
Image Source: Zacks Investment Research
Decelerating Sales Growth: A Major Concern
Salesforce once witnessed double-digit revenue growth but is now facing a concerning slowdown. In the first quarter of fiscal 2025, the company’s sales growth barely reached the low double digits, a stark contrast to the more than 20% growth it consistently saw until fiscal 2022.
This deceleration isn’t just a temporary issue, it reflects broader challenges both within Salesforce and the market at large. Businesses are tightening their IT budgets and hesitating on large investments due to economic uncertainties and geopolitical tensions, which are impacting Salesforce's growth.
Moreover, Salesforce has shifted its strategy from aggressive expansion to focusing on margin improvement. This has led to significant cost-cutting measures, including layoffs, which, while boosting short-term profitability, have also reduced investments in essential areas like sales and marketing.
As a result, Salesforce’s sales growth is expected to slow even further. The current Zacks Consensus Estimate indicates that its top-line growth will settle in a mid-to-high single-digit percentage range for fiscal 2025 and 2026.
The deceleration in revenue growth is expected to drag down Salesforce’s earnings growth as well. The company’s earnings per share are now projected to witness a CAGR of just 15.3% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the previous five years.
Conclusion
Given the challenges Salesforce is facing, it might be time for investors to reconsider their position. The company’s slowing sales growth is a serious concern that cannot be ignored. The bearish sentiment is further underscored by this Zacks Rank #4 (Sell) company's underperformance relative to the broader market and its peers.
Holding on to Salesforce stock in the current environment could mean riding out a prolonged period of underperformance. For investors looking to maximize returns, selling the shares of the company now could be a prudent move.
Image: Bigstock
Should You Buy, Sell or Hold Salesforce (CRM) Ahead of Q2 Earnings?
Salesforce (CRM - Free Report) is scheduled to release second-quarter fiscal 2025 results on Aug 28.
For the fiscal second quarter, the company projects total revenues between $9.20 billion and $9.25 billion (midpoint $9.225 billion). The Zacks Consensus Estimate for revenues is pegged at $9.23 billion, which indicates an increase of 7.3% from the year-ago quarter’s reported figure.
CRM anticipates non-GAAP earnings per share in the band of $2.34-$2.36 for the second quarter. The consensus mark for non-GAAP earnings has been revised downward by a penny to $2.35 per share, which calls for a 10.9% increase from the year-ago quarter.
Image Source: Zacks Investment Research
Salesforce’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 4.5%.
Salesforce Inc. Price, Consensus and EPS Surprise
Salesforce Inc. price-consensus-eps-surprise-chart | Salesforce Inc. Quote
Let’s see how things have shaped up before this announcement.
Factors Shaping Upcoming Results
Salesforce’s quarterly performance is likely to have benefited from the robust demand environment as customers are undergoing a major digital transformation. The customer relationship management software provider’s focus on introducing more aligned products per customer needs is expected to have boosted its top line in the quarter.
Furthermore, the growing demand for generative artificial intelligence (AI)-enabled cloud-based solutions is anticipated to have aided Salesforce’s top-line growth in the second quarter. The company is currently focusing on incorporating generative AI tools across its products to keep its business ahead of rivals.
Additionally, Salesforce’s second-quarter performance may have gained from its focus on building and expanding relationships with leading brands across industries and geographies. Also, significant growth opportunities in the public sector are expected to have been a tailwind in the fiscal second quarter.
Also, the acquisitions of Spiff and Airkit.ai are anticipated to have aided CRM’s top line during the to-be-reported quarter. Growth across its cloud service offerings — Sales, Service, Platform & Other, Marketing & Commerce and Data — is anticipated to have boosted Salesforce’s subscriptions and supported its revenues.
Our second-quarter revenue estimates for Sales, Service, Platform & Other, Marketing & Commerce and Data cloud services are pegged at $2.01 billion, $2.21 billion, $1.75 billion, $1.29 billion and $1.39 billion, respectively. We expect the company to report revenues from the Subscription and Support segment of approximately $8.64 billion and the Professional Services division of $585.8 million.
However, a decline in software spending by small and medium businesses amid the macroeconomic uncertainty due to the pandemic and geopolitical issues across different parts of the world may have affected Salesforce’s fiscal second-quarter top-line growth. Further, stiff competition from Oracle and Microsoft is a concern, along with forex headwinds.
However, the ongoing cost restructuring initiative, which includes trimming the workforce, is likely to have boosted Salesforce’s profitability in the second quarter. The company’s first-quarter non-GAAP operating margin expanded 450 basis points to 32.1%, mainly driven by an improved gross margin and the benefits of cost restructuring initiatives, which include the trimming of the workforce and a reduction in office spaces.
Price Performance & Valuation
Year to date, shares of Salesforce have declined 0.8%, underperforming the Zacks Computer – Software industry’s growth of 11.6%. The CRM stock has also underperformed its peers, including SAP SE (SAP - Free Report) , Oracle (ORCL - Free Report) and Microsoft (MSFT - Free Report) , which have registered a rise of 41.6%, 32.8% and 12.7%, respectively, YTD.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Salesforce offers investors at the current levels. CRM stock is trading at a discount with a forward 12-month P/S of 6.36X compared with the industry’s 8.13X.
Image Source: Zacks Investment Research
Decelerating Sales Growth: A Major Concern
Salesforce once witnessed double-digit revenue growth but is now facing a concerning slowdown. In the first quarter of fiscal 2025, the company’s sales growth barely reached the low double digits, a stark contrast to the more than 20% growth it consistently saw until fiscal 2022.
This deceleration isn’t just a temporary issue, it reflects broader challenges both within Salesforce and the market at large. Businesses are tightening their IT budgets and hesitating on large investments due to economic uncertainties and geopolitical tensions, which are impacting Salesforce's growth.
Moreover, Salesforce has shifted its strategy from aggressive expansion to focusing on margin improvement. This has led to significant cost-cutting measures, including layoffs, which, while boosting short-term profitability, have also reduced investments in essential areas like sales and marketing.
As a result, Salesforce’s sales growth is expected to slow even further. The current Zacks Consensus Estimate indicates that its top-line growth will settle in a mid-to-high single-digit percentage range for fiscal 2025 and 2026.
The deceleration in revenue growth is expected to drag down Salesforce’s earnings growth as well. The company’s earnings per share are now projected to witness a CAGR of just 15.3% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the previous five years.
Conclusion
Given the challenges Salesforce is facing, it might be time for investors to reconsider their position. The company’s slowing sales growth is a serious concern that cannot be ignored. The bearish sentiment is further underscored by this Zacks Rank #4 (Sell) company's underperformance relative to the broader market and its peers.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Holding on to Salesforce stock in the current environment could mean riding out a prolonged period of underperformance. For investors looking to maximize returns, selling the shares of the company now could be a prudent move.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.