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Salesforce's (NYSE:CRM) Q4 Sales Top Estimates, Provides Encouraging Quarterly Guidance


Radek Strnad /
2022/03/01 4:14 pm EST
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Customer relationship management software maker Salesforce (NYSE:CRM) reported Q4 FY2022 results topping analyst expectations, with revenue up 25.9% year on year to $7.32 billion. Guidance for next quarter's revenue was $7.37 billion at the midpoint, which is 1.43% above the analyst consensus. Salesforce made a GAAP loss of $28 million, down on its profit of $267 million, in the same quarter last year.

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Salesforce (CRM) Q4 FY2022 Highlights:

  • Revenue: $7.32 billion vs analyst estimates of $7.24 billion (1.16% beat)
  • EPS (non-GAAP): $0.84 vs analyst estimates of $0.75 (12.1% beat)
  • Revenue guidance for Q1 2023 is $7.37 billion at the midpoint, above analyst estimates of $7.27 billion
  • Management's revenue guidance for upcoming financial year 2023 is $32 billion at the midpoint, in line with analyst expectations and predicting 20.9% growth (vs 24.5% in FY2022)
  • Free cash flow of $1.81 billion, up from $238 million in previous quarter
  • Gross Margin (GAAP): 72.5%, down from 74.5% same quarter last year

“We had another phenomenal quarter and full-year of financial results,” said Marc Benioff, Chair and Co-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.

Sales Growth

As you can see below, Salesforce's revenue growth has been strong over the last year, growing from quarterly revenue of $5.81 billion, to $7.32 billion.

Salesforce Total Revenue

This quarter, Salesforce's quarterly revenue was once again up a very solid 25.9% year on year. But the growth did slow down a little compared to last quarter, as Salesforce increased revenue by $463 million in Q4, compared to $523 million revenue add in Q3 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 23.6% year on year to $7.37 billion, in line with the 22.5% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $32 billion at the midpoint, growing 20.9% compared to 24.5% increase in FY2022.

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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 72.5% in Q4.

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 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 Q4 Results

Sporting a market capitalization of $207 billion, more than $10.5 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.

It was good to see Salesforce provide next quarter revenue outlook exceeding analysts’ expectations. And we were also glad to see good revenue growth. Zooming out, we think this was a good quarter, showing the company is staying on target. The company is up 3.82% on the results and currently trades at $217 per share.

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