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Shares of Salesforce Inc. gained more than 5% in extended trading today after the company posted quarterly results and guidance that exceeded Wall Street’s estimates.
The customer relationship management giant also raised its full-year forecast amid resilient demand for its cloud software offerings despite ongoing economic uncertainty.
The company reported second quarter net income of $1.27 billion, up from just $68 million one year earlier. Earnings before certain costs such as stock compensation came to $2.12 per share, while revenue rose by 11% from a year earlier to $8.6 billion. The numbers were impressive, with analysts targeting earnings of just $1.90 per share on lower sales of $8.53 billion.
All the more impressive is that Salesforce continues to feel the pressure of an uncertain economy, its finance chief Amy Weaver said on a conference call with analysts. She pointed out that the company is still encountering softness in the U.S. market, as well as certain industries, including technology, consumer goods and retail. “We are still seeing elongated sales cycles, additional deal approval layers and deal compression in our subscription and support and professional-services businesses,” Weaver said.
Despite this pressure, Salesforce still feels optimistic. For the third quarter, it’s calling for earnings of between $2.05 to $2.06 per share on revenue of $8.7 billion to $8.72 billion. That’s some way ahead of Wall Street’s call for $1.83 per share in earnings and $8.66 billion in sales.
The company, which sells software for managing customer relationships, also raised its full-year forecast. It’s now looking at earnings of $8.04 to $8.06 per share on total revenue of $34.7 billion to $34.8 billion, up from an earlier range of $7.41 to $7.43 in earnings and $34.5 billion to $34.7 billion in sales.
Weaver said Salesforce’s MuleSoft offering, which is used by customers to integrate software as a service, on-premises software, legacy systems and other applications, was the primary driver of growth during the quarter. “This is evidenced by more than 450 customers who invest more than $10 million annually and average seven clouds,” she said. “In the last five years the number of $10 million-plus customers has tripled.”
Charles King of Pund-IT Inc. said Salesforce did well to beat the Street’s targets on earnings and revenue, but even more impressive is its rising profitability. “It’s non-GAAP operating margins in the quarter were 31.6%, up from 27.6% in the previous quarter,” he said. “This lends credence to the company’s sunny outlook.”
Holger Mueller of Constellation Research Inc. agreed with that assessment, saying Salesforce grew well during the quarter, boosting its net income per share and showing good revenue increases in its software-as-a-service offerings. “Internationally, Salesforce also has plenty of room for more growth,” Mueller added. “Right now it’s only making $1 in Asia for every $8 it makes in North America, so there is lots of potential there. Looking forward to Salesforce’s Dreamforce event that’s coming up, investors will be paying attention to what’s in the innovation pipeline, especially in terms of AI and how soon this product roadmap can boost its revenues.”
From a wider perspective, Salesforce’s results fan recent optimism over the prospects of a recovery in technology spending in the second half of the year. Earlier this month, cloud computing infrastructure giants Amazon.com Inc. and Alphabet Inc.-owned Google LLC both reported strong results, indicating that the economy might be starting to improve.
Salesforce Chief Executive Marc Benioff (pictured) believes that the company’s focus on infusing artificial intelligence technology into those products can ignite further expansion going forward. The company has attempted to boost demand for its services by integrating AI into offerings such as Slack.
“We’re leading our customers into the new AI era,” Benioff said. “We are very thirsty to make sure that Salesforce is the No. 1 AI CRM, and we have done a lot organically to do that in the last six months.”
Salesforce recently announced AI features for its Sales Cloud and Service Cloud products, priced at $50 per person per month. The company has also announced an AI cloud focused on marketing and data analytics.
Another key move earlier this month saw Salesforce roll out its first price hikes in seven years, increasing the cost of its major products and services by an average of 9%. However, Weaver said she doesn’t expect either AI or the price increases to have much impact on the company’s bottom line this year.
“I will say that neither has a significant influence on our guidance for this year,” she said. “I think that those opportunities really take a while to roll through our customer base, particularly on pricing as we look to renewals.”
King said Salesforce’s admission that it doesn’t expect AI to have any measurable impact in the immediate future is telling, and should serve as a reminder to others to temper their expectations. “Salesforce is clearly not expecting any short-term benefits,” he said. “That careful and realistic view of AI is one that AI enthusiasts might do well to consider or even emulate.”
Prior to today’s rise, Salesforce’s stock was already up 62% in the year to date, compared to an overall gain of just 18% for the S&P 500 Index.
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