Salesforce (NYSE:CRM) Q2 Sales Beat Estimates, Provides Encouraging Quarterly Guidance

Adam Hejl /
2021/08/25 4:19 pm EDT

Customer relationship management software maker Salesforce (NYSE:CRM) beat analyst expectations in Q2 FY2022 quarter, with revenue up 23% year on year to $6.34 billion. Salesforce made a GAAP profit of $535 million, down on its profit of $2.62 billion, in the same quarter last year.

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Salesforce (CRM) Q2 FY2022 Highlights:

  • Revenue: $6.34 billion vs analyst estimates of $6.24 billion (1.51% beat)
  • EPS (non-GAAP): $1.48 vs analyst estimates of $0.93 (59.4% beat)
  • Revenue guidance for Q3 2022 is $6.78 billion at the midpoint, above analyst estimates of $6.66 billion
  • The company lifted revenue guidance for the full year, from $25.9 billion to $26.2 billion at the midpoint, a 1.15% increase
  • Free cash flow of $173 million, down 94.3% from previous quarter
  • Gross Margin (GAAP): 74.5%, in line with previous quarter

“With companies and governments around the world continuing to accelerate their digital transformations, we delivered our fifth phenomenal quarter in a row,” said Marc Benioff, Chair & CEO, Salesforce.

Launched in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, Salesforce is a software as a service platform that helps companies access, manage and share sales information.

Companies need to be able to contact their customers and sell to them as efficiently as possible, and that together with the ongoing migration to cloud drives demand for cloud-based CRM solutions that integrate data analytics with sales and marketing functions.

Sales Growth

As you can see below, Salesforce's revenue growth has been strong over the last year, growing from quarterly revenue of $5.15 billion, to $6.34 billion.

Salesforce Total Revenue

This quarter, Salesforce's quarterly revenue was once again up a very solid 23% year on year. On top of that, revenue increased $377 million quarter on quarter, a very strong improvement on the $146 million increase in Q1 2022, which shows acceleration of growth, and is great to see.

Analysts covering the company are expecting the revenues to grow 21.7% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Salesforce's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 74.5% in Q2.

Salesforce Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the average of what we typically see in SaaS businesses, but it is good to see that the gross margin is staying stable which indicates that Salesforce is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from Salesforce's Q2 Results

With a market capitalization of $252 billion, more than $9.65 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

Salesforce' revenue guidance for the next quarter looks quite a bit better than what the analysts were expecting. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 1.75% on the results and currently trades at $265.99 per share.

Should you invest in Salesforce right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.