Salesforce Reports Solid Q2 Results, But Guidance Misses Estimates

+7.26%
Upside
301
Market
323
Trefis
CRM: Salesforce logo
CRM
Salesforce

Salesforce (NYSE:CRM) announced robust Q2 earnings on Wednesday, August 31, but the company’s stock was down over 6% in after-hours trading following weak third quarter guidance. The company’s revenue grew by nearly 25% year-on-year (y-o-y) to $2 billion for the quarter and beat analysts’ estimates by $20 million. The rise in revenue was primarily driven by a surge in subscriptions for AppCloud and Service Cloud. The company’s net income increased significantly to about $230 million, aided by tax benefits related to the acquisition of Demandware. Adjusted earnings per share for the company increased from $0.19 in Q2 FY’16 to $0.24 in previous quarter.

Screen Shot 2016-09-01 at 15.42.52

Screen Shot 2016-09-01 at 15.43.00

Relevant Articles
  1. Up 69% In The Last Twelve Months, What To Expect From Salesforce Stock?
  2. Up 74% Since The Beginning of 2023, Will Salesforce Stock Continue Its Strong Rally?
  3. Salesforce Stock Is Undervalued
  4. Salesforce Stock To Edge Past The Consensus In Q1
  5. Salesforce Stock Is Trading Below Its Fair Value
  6. What To Expect From Salesforce Stock In Q4?

Screen Shot 2016-09-01 at 15.27.37

Screen Shot 2016-09-01 at 15.43.09

In the quarter ending July 31, Salesforce’s revenue increased 25% y-o-y to to an all-time high quarterly revenue of over $2 billion. Significant growth in AppCloud and Service cloud fueled Subscription and Support sales, which grew 24% over the prior year quarter to $1.9 billion.

The Americas region – which contributed 73% of total revenues – continued to drive growth. The company strengthened its hold in Europe, where its revenues increased 21% over the prior year quarter to $347 million. The company closed another nine figure deal in the quarter in addition to deals with Cellcom, PostNord, TNT, AXA and Nestle in Europe, and Shinsei Bank, Meiji Yasuda, Samsung, and Telstra in the Asia Pacific region. Salesforce completed the Demandware acquisition in the previous quarter, which additionally contributed $9 million to its top line.

Over the past couple of years, the company has realized the need to improve its bottom line and has made conscious efforts to do the same. In terms of expenses, the company’s marketing expenditure as a percentage of sales has steadily fallen from 56% in the fourth quarter of fiscal 2014 to 46% in the fiscal second quarter, which has positively impacted operating income and margins. Aided further by tax benefits related to the Demandware acquisition, the company’s net income increased from a slight loss in the prior year quarter to $230 million – or 34 cents a share – in this quarter.

Screen Shot 2016-09-01 at 15.43.18

Salesforce’s free cash flow for the six months ending July 31 2016 (FY’17) increased to $1.12 billion primarily aided by a 25% increase in net cash from operating activities.

Guidance Misses Consensus Estimates

Screen Shot 2016-09-01 at 15.43.45

In the third quarter, Salesforce expects to generate revenue in range of $2.11-$2.12 billion and earnings per share of $0.20-$0.21. These figures missed Reuters’ consensus estimates of $2.13 billion for revenue and $0.24 for EPS. This resulted in the company’s stock declining in after-hours trading following the announcement. For the full fiscal year, the company increased the lower end of its revenue guidance from $8.26 billion to $8.275 billion but slightly lowered its expectations for earnings per share from $0.21-$0.22 to $0.20-$0.21, primarily due to acquisition-related expenses.

See our complete analysis for Salesforce

Get Trefis Technology