Customer relationship management software maker Salesforce (NYSE:CRM) reported results in line with analyst expectations in Q1 FY2024 quarter, with revenue up 11.3% year on year to $8.25 billion. The company expects that next quarter's revenue would be around $8.52 billion, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Salesforce made a GAAP profit of $199 million, improving on its profit of $28 million, in the same quarter last year.
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Salesforce (CRM) Q1 FY2024 Highlights:
- Revenue: $8.25 billion vs analyst estimates of $8.17 billion (0.97% beat)
- EPS (non-GAAP): $1.69 vs analyst estimates of $1.61 (4.77% beat)
- Revenue guidance for Q2 2024 is $8.52 billion at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year, at $34.6 billion at the midpoint
- Free cash flow of $4.25 billion, up 65.3% from previous quarter
- Gross Margin (GAAP): 74.2%, up from 72.4% same quarter last year
“Salesforce significantly exceeded our non-GAAP margin target for the quarter — up 1,000 basis points year-over-year, and we are raising our FY24 non-GAAP operating margin guidance to a 550 basis point increase year-over-year,” said Marc Benioff, Chair and CEO of Salesforce.
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.
As you can see below, Salesforce's revenue growth has been strong over the last two years, growing from quarterly revenue of $5.96 billion in Q1 FY2022, to $8.25 billion.
This quarter, Salesforce's quarterly revenue was once again up 11.3% year on year. But the revenue actually decreased by $137 million in Q1, compared to $547 million increase in Q4 2023. We'd like to see revenue increase each quarter, but a one-off fluctuation is usually not concerning and the management is guiding for growth to rebound in the next quarter.
Guidance for the next quarter indicates Salesforce is expecting revenue to grow 10.4% year on year to $8.52 billion, slowing down from the 21.8% 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 10.7% 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 74.2% in Q1.
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 pressure from competition to lower prices.
Key Takeaways from Salesforce's Q1 Results
With a market capitalization of $214 billion, more than $14 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.
Revenue, remaining performance obligations (a leading indicator of revenue), and EPS were ahead of expectations this quarter. On the other hand, Salesforce's revenue guidance for the full year slightly missed analysts' expectations while implied full year non-GAAP operating profit is ahead. Overall, this quarter's results were mixed. Management commentary highlighted investments in AI capabilities. The company is down 4.51% on the results and currently trades at $214 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.