CRM giant beats growth forecasts, leads strongly and announces more shareholder returns
It would be an understatement to say that Salesforce has been through a rough patch of late — from activist pressure to executive departures and layoffs — it seems as if everyone is rushing in at a company already struggling with declining profits.
It took a strong quarter, and all indications were that they wouldn’t get it. Against all odds, the CRM leader braved the road with a strong report.
After the bell today, Salesforce reported its fourth-quarter results, including earnings that beat expectations and guidance that beat street estimates.
The Strait had expected Salesforce to report $7.99 billion in revenue last quarter; it reported revenue of $8.38 billion, up 14% from the year-ago period and up three points at constant currencies.
Looking ahead, investors had forecast Salesforce to post revenue of $8.05 billion in the current quarter (Q1F24) and $34.03 billion in the new fiscal year; Instead, Salesforce expects current-quarter revenue to be between $8.16 billion and $8.18 billion, and full-year revenue to be between $34.5 billion and $34.7 billion.
TechCrunch noted earlier this week that the way for Salesforce to get out of the jam would be to beat growth estimates and improve profitability. The company definitely succeeded in the former. The company also forecasts stronger earnings. Salesforce reported GAAP and non-GAAP operating margins of 3.3% and 22.5%, respectively. For its newly commenced fiscal year, the Company expects GAAP and non-GAAP operating margins to be approximately 10.8% and 27.0%, respectively.
Salesforce smashed expectations and doubts about its recent growth, forecasting better-than-expected growth for the year and telling investors they expect an overall stronger operating result for the new fiscal year.
That might take some of the wind out of the sails of Salesforce’s critics. The company’s many critics have been lining up to criticize its spending lately, especially when compared to others in the industry, and these operating numbers in particular could help Salesforce executives as they continue to negotiate with a legion of activist firms.
It’s worth noting that just this morning, Elliott Management, one of the five activists currently working within Salesforce, announced a slate of nominees for the board, a move that usually means it wants to impose its agenda on a company. A bad report would have made this job a lot easier.
Investing critics of the company might also have wished for a higher expected shareholder return. That can come in a variety of forms, including dividends, stock buybacks, and other efforts. Salesforce has opted for stock buybacks due to its strong cash generation history. After the company noted in its report that it had refunded 57.5% of the $4 billion it spent on buybacks last fiscal year last quarter, the company also announced that it was increasing the size of its total buybacks will increase to $20 billion.
Of course, one could argue that Salesforce is stepping up its share buybacks to dampen external criticism and placate activists looking for better returns; true, but even if it does, it has a similar effect. It will buy back the stock and has the cash flow it needs. It’s hard to argue about intent when the expected outcome is likely to match what outside investors wanted.
Salesforce will retain critics over its cost structure and the fact that its projected growth for the current fiscal year is just 10%. But compared to where the company was earlier this week, its earnings report has proved many of its critics wrong, perhaps buying it more time to argue that it really knows what it’s doing.