Cloud-based software company Salesforce, Inc. (CRM) reported better-than-expected third-quarter results. The company surpassed the consensus revenue estimate by $3.41 million, while it topped analysts’ EPS estimate by 14.5%. Marc Benioff, CRM’s Chair & Co-CEO, said, “We’re grateful to our customers for their commitment, especially as we help them succeed in this challenging environment.”

“Our customers are tapping into the power of Customer 360 to gain faster time to value and reduce costs. We continued to drive profitable growth in the quarter, and we are closing more transformational deals and multi-cloud expansions,” said Bret Taylor, Co-CEO of CRM.

Furthermore, the company updated its full-year 2023 guidance. CRM’s revenue is expected to come between $30.90 billion and $31 billion, an increase of about 17% year-over-year. The company's guidance for non-GAAP operating margin increased from 20.4% to 20.7%. Also, it expects non-GAAP EPS between $4.92 and $4.94 versus the prior guidance of $4.71 to $4.73.

On January 23, 2023, Activist investor Elliott Management Corp made a multi-billion-dollar investment in CRM.

Jesse Cohn, managing partner at Elliott, commented, “Salesforce is one of the preeminent software companies in the world, and having followed the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built. We look forward to working constructively with Salesforce to realize the value befitting a company of its stature.”

Elliott Management joined hedge fund Starboard Value which took a significant stake in the company last year. Moreover, Wall Street analysts said the company would likely be urged by activist investors Elliott Investment and Starboard Value to cut more jobs, change the board, and spin-off big acquisitions to drive higher profits.

Shares of CRM have gained 12.6% over the past month to close the last trading session at $167.03. Moreover, Wall Street analysts expect the stock to hit $188.68 in the next 12 months, indicating a potential upside of 13%.

Here is what could shape CRM’s performance in the near term:

Positive Recent Developments

On January 12, 2023, CRM introduced a series of innovations to help retailers personalize every shopping moment.

Jujhar Singh, EVP and GM of Salesforce Industries, said, “Salesforce for Retail brings together the power and flexibility of Salesforce’s platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency.”

Also, in January, CRM and Walmart Inc. (WMT) announced their partnership as WMT intends to sell more of its technology and services to other companies. This collaboration between the industry giants is expected to boost shoppers’ experience.

On December 8, 2022, CRM announced that Genie Customer Data Cloud is now powered by Tableau, allowing businesses to understand better and unlock customer data and deliver actionable insights in real-time and at scale. Companies can analyze billions of data points stored in Genie using Tableau, visualize and automate insights, and take action securely.

Genie Customer Data Cloud witnessed massive adoption, powering more than 43 consumer engagements and ingesting 1.1 trillion records for CRM customers during Cyber Week 2022. A set of new innovations might extend CRM’s customer reach and boost its profitability.

Solid Financials

For the fiscal 2023 third quarter ended October 31, 2022, CRM’s subscription and support revenue increased 13.4% year-over-year to $7.23 billion, while its professional services and other revenue came in at $604 million, up 24.8% year-over-year. Also, its total revenues grew 14.2% year-over-year to $7.84 billion.

Furthermore, the company’s gross profit came in at $5.75 billion, an increase of 14.5% year-over-year. Its income from operations was $460 million, up 1,110.5% year-over-year.

Favorable Analyst Estimates

Analysts expect CRM’s revenue for the fiscal year (ended January 2023) to come in at $31.05 billion, indicating an increase of 17.2% year-over-year. The consensus EPS estimate of $4.93 for the ongoing year indicates a 3.1% year-over-year increase.

Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.

Also, the company’s revenue and EPS for the current fiscal year (ending January 2024) are expected to grow 10.4% and 18.2% from the previous year to $34.28 billion and $5.83, respectively.

POWR Ratings Show Promise

CRM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings 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 an A grade for Growth, in sync with its top-line growth in the last reported quarter. In addition, it has a B grade for Sentiment, consistent with favorable analyst estimates.

CRM is ranked #33 out of 136 stocks in the Software – Application industry. Click here to access CRM’s Quality, Value, Momentum, and Stability ratings.

View all the top stocks in the Software – Application industry here.

Bottom Line

Software giant CRM’s revenue and net income have grown at CAGRs of 24.9% and 22.1% over the past five years, respectively. The company has also raised its full-year 2023 guidance. Analysts seem bullish about its growth prospects since the company is committed to bolstering its product lineup.

CRM is currently trading above its 50-day and 200-day moving averages of $146.45 and $160.53, respectively, indicating an uptrend. Given its robust financials and bright growth prospects, it could be wise to buy this tech stock now.

How Does Salesforce, Inc. (CRM) Stack up Against Its Peers?   

While CRM has an overall POWR Rating of B, one might consider investing in these other stocks within the Software-Application industry with an A (Strong Buy) rating: Open Text Corporation (OTEX), Commvault Systems, Inc. (CVLT), and Progress Software Corporation (PRGS).

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CRM shares were unchanged in premarket trading Monday. Year-to-date, CRM has gained 25.97%, versus a 6.70% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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