Customer relationship management software maker Salesforce (NYSE:CRM) reported third-quarter 2024 results that beat Wall Street’s revenue expectations, with revenue up 8.3% year over year to $9.44 billion. On the other hand, the $10 billion revenue forecast for the next quarter was less impressive, falling 0.5% below analyst estimates. Non-GAAP earnings of $2.41 per share were 1.5% below analyst consensus estimates.
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Gain: $9.44 billion vs. analyst estimates of $9.35 billion (8.3% YoY growth, 1% faster)
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Custom EPS: $2.41 vs. analyst expectations of $2.45 (1.5% miss)
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Adjusted operating result: $3.12 billion vs. analyst estimates of $3.02 billion (33.1% margin, 3.5% profit)
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Revenue guidance for Q4 CY2024 is in the middle at $10 billion, below analyst estimates of $10.05 billion
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Management has lowered its full-year adjusted earnings per share expectations to $10.00 at the midpoint, down 0.6%
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Operating margin: 20%, compared to 17.2% in the same quarter last year
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Free cash flow margin: 18.8%, compared to 8.1% in the previous quarter
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Invoices: $7.68 billion at the end of the quarter, up 9% year over year
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Market capitalization: $316.4 billion
“We delivered another quarter of exceptional financial performance across revenue, margin, cash flow and cRPO,” said Marc Benioff, chairman and CEO of Salesforce.
Launched in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, Salesforce (NYSE:CRM) is a software-as-a-service platform that allows companies to access, manage and share sales information. .
Companies must be able to communicate with their customers and sell to their customers as efficiently as possible. This reality, coupled with the continued migration of enterprises to the cloud, is driving demand for cloud-based CRM (Customer Relationship Management) software that integrates data analytics with sales and marketing functions.
Assessing a company’s long-term sales performance reveals insights into its quality. Any company can achieve short-term success, but a top company grows for years. Over the past three years, Salesforce’s revenue grew at a compound annual growth rate of 14.2%. While this growth is solid on an absolute basis, it lagged behind our software sector benchmark.
This quarter, Salesforce reported year-over-year revenue growth of 8.3%, and revenue of $9.44 billion beat Wall Street estimates by 1%. The company’s management is currently targeting a 7.7% year-over-year revenue increase in the next quarter.
Looking further ahead, sell-side analysts expect revenue to grow by 8.4% over the next twelve months, a slowdown from the past three years. This projection does not make us excited and suggests that the products and services will face some demand challenges.
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Billings is a non-GAAP metric often called “cash revenue” because it shows how much money the company collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.
Salesforce’s billings totaled $7.68 billion in the third quarter, and growth over the past four quarters has been disappointing, averaging 7.6% year-over-year growth. This performance reflected overall sales and suggests that increasing competition is causing challenges in customer acquisition/retention.
The customer acquisition cost payback period (CAC) represents the months it takes to recoup the costs of acquiring a new customer. Essentially, this is the breakeven point for sales and marketing investments. A shorter CAC payback period is ideal as it implies a better return on investment and better scalability of the business.
Salesforce is very efficient at acquiring new customers and the CAC payback period was 26.1 months this quarter. The company’s performance gives it the freedom to invest its resources in new product initiatives while maintaining optional capabilities.
It was good to see that Salesforce narrowly topped analysts’ revenue expectations this quarter. We were also pleased that the adjusted operating result was better. On the other hand, revenue and earnings per share expectations for the next quarter fell short, making it a weaker quarter. However, the market appeared to ignore the softer outlook, with shares trading up 3.4% to $343 immediately after the results.
So should you invest in Salesforce now? When making that decision, you need to consider the bigger picture of valuation, business qualities and most recent earnings. We cover that in our useful full research report which you can read here. It’s free.
