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Salesforce's (NYSE:CRM) Q1 Earnings Results: Revenue In Line With Expectations


Kayode Omotosho /
2022/05/31 4:13 pm EDT
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Customer relationship management software maker Salesforce (NYSE:CRM) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 24.2% year on year to $7.41 billion. However, guidance for the next quarter was less impressive, coming in at $7.69 billion at the midpoint, being 0.98% below analyst estimates. Salesforce made a GAAP profit of $28 million, down on its profit of $469 million, in the same quarter last year.

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Salesforce (CRM) Q1 FY2023 Highlights:

  • Revenue: $7.41 billion vs analyst estimates of $7.38 billion (small beat)
  • EPS (non-GAAP): $0.98 vs analyst estimates of $0.94 (3.73% beat)
  • Revenue guidance for Q2 2023 is $7.69 billion at the midpoint, below analyst estimates of $7.77 billion
  • The company reconfirmed revenue guidance for the full year, at $31.7 billion at the midpoint
  • Free cash flow of $3.49 billion, up 92.6% from previous quarter
  • Gross Margin (GAAP): 72.4%, down from 73.9% same quarter last year

“We had another great quarter, delivering $7.4 billion in revenue, up 24% year-over-year,” said Marc Benioff, Co-CEO, 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.

Sales Growth

As you can see below, Salesforce's revenue growth has been strong over the last year, growing from quarterly revenue of $5.96 billion, to $7.41 billion.

Salesforce Total Revenue

This quarter, Salesforce's quarterly revenue was once again up a very solid 24.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $85 million in Q1, compared to $463 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Salesforce is expecting revenue to grow 21.3% year on year to $7.69 billion, in line with the 23% 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 19.7% 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.

Profitability

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 Q1.

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. This is 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 Q1 Results

With a market capitalization of $164 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.

Salesforce delivered solid revenue growth this quarter and a record free cash flow. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was still a decent quarter for Salesforce, showing the company is staying on target. The company is up 4.69% on the results and currently trades at $168.51 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.

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