Salesforce, Inc is an American cloud-based software company that provides customer relationship management software and designs and develops enterprise software for customers and developers to build and run business applications, as well as manage their customers, sales, marketing automation, analytics and operational data.
Headquartered in San Francisco, California, the world’s number one customer relationship management (CRM) platform, ranked by International Data Corporation (IDC) with a market cap of $156.97 billion, owns products like Sales Cloud, Service Cloud, Marketing Cloud, Slack, MuleSoft, Trailhead, Commerce Cloud and Platform. With about 73,000 employees in global offices all over the world, Salesforce, Inc holds roughly 32% market share in the industry and offers its services to about 150,000 companies including global brands like Walmart, Inc, UnitedHealth Group, and Berkshire Hathaway, Inc.
Salesforce, Inc is expected to report its earnings and revenue for the first quarter of 2023 ended in April on Tuesday, May 31st after market close.
In Q4 2021, Salesforce, Inc reported record numbers for Q4 with revenue at $7.33 billion (up 26% Year-Over-Year), and full year revenue of $26.49 billion (up 25% Year-Over-Year). It raised its revenue guidance for Q1, 2023 from $7.37 billion to $7.38 billion (up 24% Year-Over-Year), as well as its full year 2023 from $32.0 billion to $32.1 billion and estimates operating cashflow to grow by 22% Year-Over-Year.
Salesforce revenue growth has been consistent every year since 2017, reaching a record high of $26.49 billion in 2022, but despite this 25% increase in revenue, its profit margin dropped heavily to 5.45% from 19.16% in 2021. The company chose a high growth rate over profitability, completing 5 acquisitions in 2021 including its largest-ever acquisition – completed in the summer of 2021, a $27.7 billion deal to purchase Slack, the best team messaging application according to the NYTimes – which it plans to make the new interface for Customer 360 and expects $1.5 billion in sales from in fiscal 2023.
Salesforce, Inc, being the world leader in CRM software platforms which is one of the fastest growing categories of enterprise software, an industry expected to amount to around 670 billion US dollars in global spending in 2022 according to Statista, has a bright future with President and CFO Amy Weaver confident in the momentum of the business and expecting an even stronger company in 2023 and beyond. She highlights that the company’s record levels of revenue, margin, and cash flow in fiscal 2022 was driven by their focus on discipline and profitable growth.
Analysts at TipRanks expect a fall in EPS for Q1, 2022 with a consensus estimate of $0.94, a 28.7% drop from the same quarter a year ago but about 12% higher than the previous quarter which printed at $0.84. Salesforce has beat the earnings estimate every quarter since Q2, 2019 and this quarter may be no different. On revenue, Wall Street forecasts Salesforce will report a 24% year-on-year rise to $7.38 billion.
So far this year the overall market environment has not been favorable for stocks, especially tech stocks, with the Nasdaq officially in bear market territory, down about 28% YTD, the longest bear market since the 2008 financial crisis. Rising interest rates amid high inflation and fears of a global economic slowdown have been weighing on the market as investors steer clear of risk assets and gravitate towards safer instruments; this has remained a headwind for tech stocks and Salesforce is no different, falling about 36% YTD and effectively paring most of its post pandemic gains.
A lot of the negatives have already been priced in, with consistent downside all through 2022, and with signs that market participants appear to be increasingly concerned that the Fed could slow or pause its hiking cycle in the months ahead, and some of the other central banks like the BOE and RBNZ also front-loading their hikes to address surging inflation which could slow down in the months ahead, there may be room for some ease for the bleeding stock market.
The Salesforce share price only came up for some air after the release of its record financial report for Q4 and has since continued lower as the overall growth outlook has remained a headwind for its price. A beat in earnings and revenue could help the stock pare some of the losses but a deeper correction will be dependent on the company’s full year outlook for 2023. Having had a chance to factor in all the developments so far this year – renewed lockdowns in China, central banks tightening amid high inflation, expectation for global economic slowdown, a reassuring and positive outlook during the conference call – there should be some added some tailwind for the price. Comments about Slack, its biggest acquisition till date, will also be interesting as the company announced upon acquisition its plan to make the messaging application its operational backbone and that their primary focus was on integrating its products with Slack which has since helped boost demand for its Customer 360 portfolio. On the other hand, a dour outlook will add to the woes of the stock which is already down about 50% from cycle highs.
Since hitting an all-time high in November 2021 around $312.80, #Salesforce has seen 7 months of consecutive losses, breaking through the $200 support level which was the low of March 2021 and high of February 2020, and has now settled at the $154.50 level. The price has been stuck in a descending channel since late March and the earnings release could be the catalyst to break through the channel where a miss and weak forward guidance could see the stock head for next key level of support at $115.20 while a solid print should propel the price towards the $186.00 level. The RSI is off oversold levels and shows the risk to the upside is more than to the downside while the MACD, while still in negative territory, is seeing its histogram shrink – a bounce can’t be ruled out, especially on a good report, as the stock could react more to good news rather than bad news at such stretched levels.