Salesforce, Inc. (CRM) is a leading Customer Relationship Management (CRM) technology provider that brings companies and customers together globally. Its wide range of services, including sales to store data, monitoring leads and progress, forecasting opportunities, and gaining insights through analytics and artificial intelligence, has enabled it to cater to diverse customer demands.
Further, with the recent strategic partnerships and acquisitions, the company is delving deeper into integrating AI tools into its CRM platform, making it a beneficial choice for its customers and investors looking to invest.
In the last reported quarter, CRM surpassed analyst estimates on both the top and bottom lines. The company posted EPS of $2.44, compared to analysts’ estimate of $2.37. The company’s total revenues increased 10.7% year-over-year to $9.13 billion. Analysts expect its EPS and revenue for the quarter (ended July 2024) to grow 11.1% and 7.3% year-over-year to $2.36 and $9.23 billion, respectively.
During the first quarter, Salesforce's subsidiary company, Slack, entered into a partnership to bring secure AI to enterprise content and revolutionize the way organizations work. Further, CRM entered into a strategic alliance with Workday to create an AI-powered employee service agent, integrating HR, financial, and CRM data to enhance productivity and improve employee experiences.
Also, it unveiled new innovative solutions like Einstein 1 Marketing and Commerce Innovations to its portfolio and improved its existing offerings through collaboration with International Business Machines Corporation (IBM).
Marc Benioff, Chair and CEO of Salesforce, commented, "Our profitable growth trajectory continues to drive strong cash flow generation. Q1 operating cash flow was $6.25 billion, up 39% year-over-year. Q1 free cash flow was $6.1 billion, up 43% year-over-year."
He added, "We are at the beginning of a massive opportunity for our customers to connect with their customers in a whole new way with AI. As the world’s #1 AI CRM, we’re incredibly well positioned to help companies realize the promise of AI over the next decade."
As per the company’s fiscal 2025 second-quarter guidance, CRM expects total revenue between $9.20 billion and $9.25 billion, indicating a 7%-8% increase year-over-year. The company’s non-GAAP EPS is expected to range from $2.34 to $2.36.
For the fiscal full year, the company has its total revenue guidance between $37.70 billion and $38 billion, with a year-over-year growth of 8% - 9%. Its subscription & support revenue year-over-year growth is expected to be 10%, while its non-GAAP EPS is expected to range from $9.86 to $9.94. CRM’s operating cash flow is expected to grow from 21% to 24% in the year.
Shares of CRM have surged 1% over the past month and 24.8% over the past year to close its last trading session at $264.20.
Let’s look at factors that could influence CRM’s performance in the upcoming months.
Positive Recent Developments
On July 31, CRM’s Slack and Box, Inc. (BOX), the leading Intelligent Content Cloud, expanded their partnership to bring secure AI to enterprise content to transform the way organizations work. With the collaboration, joint customers are now able to access unlimited Box AI queries directly in Slack, allowing users to ask critical questions and uncover timely insights from Box files.
The companies also announced other joint enhancements to the integration, like dynamic and secure file previews of Box files in Slack and improved workflow automation across the two platforms.
On July 24, CRM and Workday entered a strategic partnership to create an AI-powered employee service agent, integrating HR, financial, and CRM data to enhance productivity and improve employee experiences. The collaboration will also deepen Workday’s integration with Slack for seamless collaboration.
On May 22, CRM expanded its Einstein Copilot capabilities by introducing new features for marketers and merchants, which help 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.
It also introduced new tools to unify business and commerce data and a new AI-powered personalization decision engine to help companies personalize customer interactions at every touchpoint using data from any source.
Robust Financials
CRM’s total revenues increased 10.7% year-over-year to $9.13 billion during the first quarter that ended April 30, 2024. Its gross profit grew 13.9% from the year-ago value to $6.97 billion. The company’s non-GAAP income from operations of $2.93 billion indicates growth of 28.8% from the prior year’s quarter.
In addition, the company’s non-GAAP net income came in at $2.41 billion or $2.44 per share, up 43.8% and 44.4% year-over-year, respectively. Its free cash flow increased 43.2% from the year-ago value to $6.08 billion.
Also, the company’s cash and cash equivalents stood at $9.96 billion as of April 30, 2024, compared to $8.47 billion as of January 31, 2024.
Solid Historical Growth
CRM’s revenue and EBITDA have grown at respective CAGRs of 16.9% and 34% over the past three years. The company’s EBIT has increased 90.8% over the same timeframe, while its net income and EPS have improved at CAGRs of 7.2% and 5.5%, respectively.
Furthermore, the company’s total assets and levered free cash flow have grown at CAGRs of 14% and 15.3% over the past three years, respectively.
Favorable Analyst Estimates
Analysts expect CRM’s revenue for the second quarter (ended July 2024) to increase 7.3% year-over-year to $9.23 billion. The consensus EPS estimate of $2.36 for the same quarter reflects an 11.1% year-over-year improvement. Moreover, the company has surpassed the consensus EPS estimates in all of the trailing four quarters, which is impressive.
For the fiscal year ending January 2025, CRM’s revenue and EPS are expected to grow 8.6% and 20.5% year-over-year to $37.85 billion and $9.90, respectively. Additionally, Street expects the company’s revenue and EPS for the fiscal year 2026 to increase 9.3% and 11.2% year-over-year to $41.37 billion and $11.01, respectively.
High Profitability
CRM’s trailing-12-month gross profit margin and EBIT margin of 76% and 18.45% are 54% and 265.6% higher than the respective industry averages of 49.36% and 5.05%, respectively. Its trailing-12-month net income margin of 15.30% is considerably higher than the industry average of 3.63%.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 9.34%, 5.71%, and 5.69% favorably compares to the industry averages of 4.41%, 2.76%, and 2.06%, respectively. Similarly, its trailing-12-month levered FCF margin of 35.16% is 233.4% higher than the industry average of 10.54%.
POWR Ratings Reflect Promise
CRM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a 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 Quality, in sync with its higher-than-industry profitability, and impressive historical growth.
CRM is ranked #24 in the 129-stock Software - Application industry.
Beyond what I have stated above, we have also given CRM grades for Sentiment, Value, Momentum, Growth, and Stability. Get access to all the CRM Ratings here.
Bottom Line
CRM is a leading customer relationship management provider. Its rapid integration with AI tools for its CRM platform is unwinding significant potential for the company. Also, analysts appear bullish about the company’s growth prospects, driven by the ever-growing demand for its innovative product offerings, strategic partnerships, and acquisitions.
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: IBEX Ltd. (IBEX), SS&C Technologies Holdings Inc. (SSNC), and Cognyte Software Ltd. (CGNT).
For exploring more A and B-rated software stocks, click here.
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CRM shares were trading at $258.10 per share on Wednesday afternoon, down $6.10 (-2.31%). Year-to-date, CRM has declined -1.63%, versus a 17.66% 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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