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Salesforce gains 6% after earnings

17:17 30 November 2023

Salesforce (CRM.US) launched today's trading with an over-7% bullish price gap. Solid performance of the company's shares today is driven by release of a solid fiscal-Q3 2024 earnings report (calendar August-October 2023 period). 

Salesforce reported fiscal-Q3 earnings that were better-than-expected. While revenue came mostly in-line with expectations, company surprised to the upside with profit. Adjusted operating income climbed over50% from a year ago with adjusted EPS jumping from $1.40 to $2.11 (exp. $2.06). Company has been struggling to grow its sales as quickly as it used to due to a recent slowdown in IT spending. However, company's strategy to weather this period of slowdown by increasing efficiency seems to be working - adjusted operating margin increased by 8.5 percentage points compared to a year ago quarter. 

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Fiscal-Q3 2024 earnings

  • Revenue: $8.72 billion vs $8.71 billion expected (+11% YoY)
  • Subscription and support revenue: $8.14 billion vs $8.09 billion expected (+13% YoY)
    • Sales: $1.91 billion vs $1.90 billion expected (+11% YoY)
    • Services revenue: $2.07 billion vs $2.08 billion expected (+12% YoY)
    • Platform & other revenue: $1.69 billion vs $1.69 billion expected (+11% YoY)
    • Marketing & commerce revenue: $1.23 billion vs $1.25 billion expected (+8.9% YoY)
    • Subscription and support data revenue: $1.25 billion vs $1.17 billion expected (+22% YoY)
  • Professional services and other revenue: $579 million vs $621.5 million expected (-4.1% YoY)
  • Unearned revenue at quarter's end: $12.56 billion vs $12.78 billion expected
  • Adjusted income from operations: $2.72 billion vs $2.64 billion expected (+53% YoY)
  • Adjusted operating margin: 31.2% vs 30.4% expected (22.7% a year ago)
  • Adjusted EPS: $2.11 vs $2.06 expected ($1.40 a year ago)
  • Remaining performance obligations: $48.3 billion vs $44.86 billion expected (+21% YoY)
    • Current: $23.9 billion vs $23.17 billion expected (+14% YoY)
    • Non-current: $24.4 billion vs $21.72 billion expected
  • Free cash flow: +$1.37 billion vs +$0.90 billion expected

Revenue guidance for full fiscal-2024 has been boosted slightly by adjusting the lower limit of forecast range higher. Full-year adjusted EPS and operating margin guidance were also boosted. Sales forecast for fiscal-Q4 was mostly in-line with expectations, while Q4 adjusted EPS turned out to be higher than expected. A point to note is that 10% growth forecast for current remaining performance obligations for fiscal-Q4 seems conservative, given strong 14% growth in fiscal-Q4.

Fiscal-Q4 2024 forecast

  • Revenue: $9.18-9.23 billion vs $9.22 billion expected
  • Adjusted EPS: $2.25-2.26 vs $2.17 expected
  • Current remaining performance obligation: +10%

Full fiscal-2024 forecast

  • Revenue: $34.75-34.80 billion, up from previous guidance of $34.7-34.8 billion
  • Adjusted EPS: $8.18-8.19, up from previous guidance of $8.04-8.06
  • Adjusted operating margin: 30.5%, up from previous forecast of 'about 30%'

Salesforce (CRM.US) trades over 6% higher on the day following release of solid fiscal-Q3 2024 earnings report. Stock is trading at the highest level since the beginning of 2022 as company's strategy to weather IT spending slowdown by improving margins seems to be working. A key near-term level to watch is the $250 resistance zone, which bulls attempt to clear today but failed.

Source: xStation5

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