Salesforce (NYSE:CRM) Reports Q2 In Line With Expectations But Stock Drops On Weak Guidance

Adam Hejl /
2022/08/24 4:10 pm EDT

Customer relationship management software maker Salesforce (NYSE:CRM) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue up 21.7% year on year to $7.72 billion. However, guidance for the next quarter was less impressive, coming in at $7.82 billion at the midpoint, being 3.06% below analyst estimates. Salesforce made a GAAP profit of $68 million, down on its profit of $535 million, in the same quarter last year.

Is now the time to buy Salesforce? Access our full analysis of the earnings results here, it's free.

Salesforce (CRM) Q2 FY2023 Highlights:

  • Revenue: $7.72 billion vs analyst estimates of $7.69 billion (small beat)
  • EPS (non-GAAP): $1.19 vs analyst estimates of $1.03 (15.7% beat)
  • Revenue guidance for Q3 2023 is $7.82 billion at the midpoint, below analyst estimates of $8.07 billion
  • The company dropped revenue guidance for the full year, from $31.7 billion to $30.9 billion at the midpoint, a 2.51% decrease
  • Free cash flow of $131 million, down 96.2% from previous quarter
  • Gross Margin (GAAP): 72.4%, down from 74.5% same quarter last year

“We had another strong quarter, with revenue of $7.7B growing 22% year-over-year and 26% in constant currency, showing yet again the durability of our business model,” said Marc Benioff, Salesforce Chair and Co-CEO.

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

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software 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 $6.34 billion, to $7.72 billion.

Salesforce Total Revenue

This quarter, Salesforce's quarterly revenue was once again up a very solid 21.7% year on year. On top of that, revenue increased $309 million quarter on quarter, a very strong improvement on the $85 million increase in Q1 2023, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Salesforce is expecting revenue to grow 14% year on year to $7.82 billion, slowing down from the 26.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 17.1% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


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, licenses, technical support and other necessary running expenses was at 72.4% in Q2.

Salesforce Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Salesforce's Q2 Results

With a market capitalization of $175 billion, more than $13.5 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.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Salesforce's revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Salesforce. The company is down 5.87% on the results and currently trades at $170 per share.

Salesforce may have had a tough quarter, but does that actually create an opportunity to invest 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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