What To Watch For In Salesforce’s Q1 Earnings

by Trefis Team
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Salesforce‘s (NYSE:CRM) performance was strong in 2016, and we expect this trend to continue when the company reports its first quarter earnings on May 18th. Its top line grew by more than 25% last year, and consensus estimates suggest marginally lower growth for the first quarter due to to seasonality. Salesforce generates revenues primarily from subscription fees and support for its services. With customer preferences shifting towards cloud-based products, the company’s enterprise cloud computing solutions – which include apps and platform services, as well as professional services to facilitate the adoption of its solutions – will play a key role in boosting its growth. Competitors such as Microsoft and Amazon also saw 10% and 43% growth, respectively, in their cloud-based revenues, which indicates that the entire cloud segment is likely growing at an impressive pace.

Salesforce is betting big on its AI CRM platform, Einstein, and we expect it to boost adoption of the company’s cloud solutions. Sales Cloud – the company’s flagship product – grew 13% over the prior year, and continued to be the largest contributor to the Subscription and Support segment. Service Cloud and Marketing Cloud saw revenue increases of around 27% and 42%, respectively. We expect growth across the CRM and software businesses.

Geographically, Salesforce continued to perform well in the Americas, which contributed 74% of total revenues and grew by 27% year-on-year to $6.23 billion for fiscal 2017. Asia-Pacific – where the public cloud market is expected to grow at 12% and reach $11.5 billion by 2018, per Gartner – witnessed the most growth for the company, with revenues from the region increasing 34% y-o-y to $793 million. The increased focus on the Asian market is likely to benefit the company’s quarterly performance.

Profitability remains a key area of focus for Salesforce, as its GAAP EPS remained negative at $(0.07) in the previous quarter, though non-GAAP EPS of $0.28 was up 47% from the prior year. Operating expenses grew at over 25% as the company continued to spend extensively on sales and R&D in order to effectively compete with rivals such as SAP and Microsoft. This trend is not expected to change in Q1.

See our complete analysis for Salesforce

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