CRM

Should Salesforce (CRM) be in Your Portfolio Before Q1 Earnings?

May 24, 2024

26 4 minutes read

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Salesforce CRM is scheduled to release first-quarter fiscal 2025 results on May 29.

Salesforce, a leader in customer relationship management (“CRM”) software, has demonstrated strong financial performance and innovative advancements. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 5.1%.

For the fiscal first quarter, the company projects total revenues between $9.12 billion and $9.17 billion (midpoint $9.145 billion). Non-GAAP earnings are expected between $2.37 and $2.39 per share.

The Zacks Consensus Estimate for revenues is pegged at $9.14 billion, which indicates an increase of 10.8% from the year-ago quarter’s reported figure. The consensus mark for earnings is pegged at $2.38 per share, which implies a year-over-year rise of 40.8%.

Salesforce’s year-to-date (YTD) share price performance has been marked by significant volatility, reflecting broader market fluctuations. YTD, CRM stock has risen 5.8%, underperforming the Zacks Computer – Software industry’s growth of 11.2%.

As Salesforce approaches its first-quarter earnings announcement, let’s examine whether now is the right time to buy shares.

Salesforce Inc. Price and EPS Surprise

Salesforce Inc. price-eps-surprise | Salesforce Inc. Quote

Financial Performance & Growth Prospects

Salesforce has consistently delivered robust financial results, reflecting its strong market position and innovative product offerings. In the last reported quarter, Salesforce’s revenues increased 11% year over year to $9.26 billion, while non-GAAP earnings soared 36% to $2.29 per share. This growth was driven by strong demand for its cloud-based CRM solutions and strategic acquisitions that have broadened its service offerings.

The company’s guidance for fiscal 2025 has been optimistic, projecting revenues between $37.7 billion and $38 billion. This outlook suggests continued confidence in the business’s ability to capture market share and expand its customer base. Salesforce’s focus on innovation, particularly in artificial intelligence and automation, positions it well to meet evolving customer needs.

The Zacks Consensus Estimate for fiscal 2025 revenues and non-GAAP earnings is pegged at $37.93 billion and $9.71 per share, respectively. This indicates a year-over-year improvement of 8.8% in the top line and 18.1% in the bottom line. Moreover, the long-term expected earnings growth rate currently stands at 15.2%, which is significantly higher than the industry’s average growth of 12.3%.

Strengthening Market Position

Salesforce holds a dominant position in the CRM market, competing with other tech giants like Microsoft, Oracle and SAP. Its comprehensive suite of CRM applications, combined with its extensive partner ecosystem, provides a significant advantage. Gartner has consistently ranked Salesforce as a leader in the CRM space, underscoring its strong market presence.

Salesforce’s strategy includes targeted acquisitions that enhance its technology stack and market reach. The acquisition of Slack in 2021 for $27.7 billion exemplifies this approach, integrating communication and collaboration tools into its CRM platform. This buyout has driven cross-sell opportunities and deepened customer engagement for Salesforce. Additionally, the acquisitions of Spiff and Arikit.ai startups in 2023 have further strengthened its capabilities and market position.

Salesforce is continuously expanding its generative AI offerings to tap the growing opportunities in the space. The company forayed into the generative AI space with the launch of Einstein GPT in March 2023. In June 2023, it further elevated the set of its generative AI tools with the launch of the AI Cloud service. With this, the company claims to offer one-stop AI-powered solutions for enterprises looking to enhance productivity.

Strong Partner Base Aids Prospects

Salesforce’s growth is significantly bolstered by strategic partnerships with other tech giants, enhancing its market position and expanding its technological capabilities. Collaborations with companies like International Business Machines IBM, Amazon’s AMZN Amazon Web Services (“AWS”) and Alphabet’s GOOGL Google Cloud have been pivotal.

Salesforce’s recent partnership with IBM to integrate IBM’s watsonx AI and Data Platform with the Salesforce Einstein 1 Platform signifies its commitment to leveraging AI to deliver more personalized and efficient customer experiences. These innovations are likely to enhance Salesforce’s competitive edge and attract more enterprise clients.

With Amazon’s AWS, Salesforce has deepened its cloud capabilities, offering more robust, scalable solutions for enterprise customers. This partnership facilitates seamless data integration and management, crucial for businesses undergoing digital transformation. By leveraging AWS’ infrastructure, Salesforce can deliver faster, more reliable services, enhancing customer satisfaction and loyalty.

The alliance with Alphabet’s Google Cloud integrates Google’s data analytics and AI tools with Salesforce’s CRM, providing customers with powerful insights and more efficient business processes. This collaboration enhances Salesforce’s ability to offer data-driven solutions, helping clients make informed decisions and optimize their operations.

Overall, these strategic partnerships enable Salesforce to innovate rapidly, expand its service offerings and strengthen its competitive edge, driving sustained growth and market leadership.

Final Thoughts

Salesforce currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A strong portfolio, along with its sustained focus on aligning products with customer needs, reflects solid top-line growth potential over the long run. Despite its strengths, Salesforce faces several risks that can undermine its near-term prospects. The global economic environment remains uncertain, with potential headwinds from protracted inflationary conditions, still-high interest rates and geopolitical tensions. These factors could impact enterprise spending on software and IT services.

Moreover, Salesforce’s valuation looks stretched at the current level, as reflected by the Value Score of D. We note that Salesforce currently has a trailing 12-month P/E ratio of 45.1. This level compares unfavorably to the industry average of 38.4. Hence, it would be prudent for investors to wait for a better entry time.

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