Salesforce (NYSE:CRM) Reports Q3 In Line With Expectations But Stock Drops On Weaker Guidance

Jabin Bastian /
2021/11/30 4:17 pm EST

Customer relationship management software maker Salesforce (NYSE:CRM) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 26.6% year on year to $6.86 billion. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $7.22 billion at the midpoint, or 0.06% below analyst estimates. Salesforce made a GAAP profit of $468 million, down on its profit of $1.08 billion, in the same quarter last year.

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Salesforce (CRM) Q3 FY2022 Highlights:

  • Revenue: $6.86 billion vs analyst estimates of $6.8 billion (0.87% beat)
  • EPS (non-GAAP): $1.27 vs analyst estimates of $0.92 (37.8% beat)
  • Revenue guidance for Q4 2022 is $7.22 billion at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $238 million, up 37.5% from previous quarter
  • Gross Margin (GAAP): 73.1%, down from 74.2% same quarter last year

“We delivered another phenomenal quarter, fueling strong revenue growth, margin and cash flow,” 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 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 $5.41 billion, to $6.86 billion.

Salesforce Total Revenue

This quarter, Salesforce's quarterly revenue was once again up a very solid 26.6% year on year. On top of that, revenue increased $523 million quarter on quarter, a very strong improvement on the $377 million increase in Q2 2022, which shows re-acceleration of growth, and is great to see.

Analysts covering the company are expecting the revenues to grow 22% over the next twelve months, although estimates are likely to change post earnings.

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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, licenses, technical support and other necessary running expenses was at 73.1% in Q3.

Salesforce Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still around the 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 Q3 Results

Sporting a market capitalization of $290 billion, more than $9.39 billion in cash and with positive free cash flow over the last twelve months, we're confident that Salesforce has the resources it needs to pursue a high growth business strategy.

delivered solid revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, the guidance as weaker than we expected and there was a deterioration in gross margin. Overall, this quarter's results could have been better. The company is down 6.93% on the results and currently trades at $265.41 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.