Despite solid earnings, Salesforce investors are less than impressed
Salesforce.com Inc. easily topped earnings estimates in a strong second quarter, but investors were far from impressed as it came up short on its third-quarter guidance, sending its share price down in after-hours trading.
Salesforce, widely regarded as the leader in customer relationship management software, posted earnings before certain costs such as stock compensation of 71 cents per share on revenue of $3.28 billion, which is a 27 percent increase from a year ago. Analysts had pegged Salesforce’s earnings at just 47 cents per share on revenue of $3.23 billion, giving the company’s executives plenty to smile about.
“Salesforce revenue grew 27 percent to almost $3.3 billion in the second quarter, with excellent performance across our clouds, industry segments and geographies,” Salesforce co-Chief Executive Keith Block (pictured) said in a statement. “With this strong quarter, we’re well on our way to our next milestone of $23 billion in revenue in FY22.”
That may well be the case, but fickle shareholders often tend to look more closely at near-term gains. In that respect, they were left disappointed as Salesforce said it was expecting profits of only 49 cents to 50 cents per share on revenue of $3.35 billion to $3.36 billion in the next quarter. Wall Street had earlier forecast third-quarter earnings of 54 cents per share.
That prompted a mild selloff, with Salesforce’s stock falling by 4 percent in after-hours trading. Update: Investors decided it wasn’t quite that bad Thursday, as shares were falling only 1.2 percent in midday trading.
“It was another good quarter for Salesforce, but managing investors’ expectations proves to be challenging, and it should not be the case given the large subscription-based revenue it has,” said Holger Mueller, vice president and principal analyst at Constellation Research Inc.
On a conference call, Salesforce execs once again did their best to showcase the company’s future earnings potential and attempts to diversify its product lineup in an effort. The other co-CEO, Marc Benioff, extolled new Einstein artificial intelligence features in its Service Cloud product, saying it now performs more than 3 billion predictions and insights a month, up from 2 billion in the previous quarter. Benioff neglected to say how much revenue Einstein had generated, however.
Analyst Charles King of Pund-IT Inc. said Salesforce is pinning a great deal of hope on its Einstein AI tools, but he thinks it’s too early to put so much weight on relatively new and modestly tested technologies.
“If they deliver the goods Salesforce believes they will, that’s all to the good,” King said. “But I expect shareholders would be gratified to see the company’s traditional business lines perform more energetically.”
Chief Financial Officer Mark Hawkins was more focused on MuleSoft, the application integration company Salesforce acquired for a massive $6.5 billion back in March. MuleSoft wasn’t bought for its earnings potential as it only contributed around $122 million in revenue in the quarter, Hawkins said. Rather, the acquisition was done for MuleSoft’s strategic value as it gives Salesforce vital integration capabilities with its customers’ existing software. As a result, MuleSoft is a big topic of discussion in “every conversation we have with senior executives,” Hawkins told analysts on the call.
But as with its Einstein software, Salesforce will need time to tap into MuleSoft’s potential, Mueller noted.
“With MuleSoft, there is an inherent integration business attached to every CRM implementation, and Salesforce can tap into that,” Mueller said. “But MuleSoft is developer-centric, and Salesforce is largely administrator-centric – so that is a gap that Salesforce has to address as well going forward.”
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