Salesforce To Post Mixed Results in Q2?

CRM: Salesforce logo

Salesforce (NYSE: CRM) is scheduled to report its fiscal Q2 2023 results on Wednesday, August 24. We expect Salesforce to edge past the consensus estimates of earnings, while revenues will likely miss the mark by a small margin. The company posted better than expected results in the last quarter, with total revenues of $7.4 billion – up 24% y-o-y. It was due to a 24% rise in the subscription & support revenues, which benefited from growth in both the Salesforce CRM (sales, service, and marketing & commerce cloud) and cloud services (platform, data, and other) sub-segments. We expect the same trend to continue in the second quarter (Note – Salesforce’s FY’22 ended on January 31, 2022. Q2 FY’23 refers to the quarter that ended on July 31, 2022).

Our forecast indicates that Salesforce’s valuation is $241 per share, which is 27% above the current market price of $190. Our interactive dashboard analysis on Salesforce’s Earnings Preview has more details. 

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(1) Revenues expected to remain marginally below the consensus estimates

Salesforce’s revenues increased 25% y-o-y to $26.5 billion in FY 2022. The growth was due to a 23% rise in the subscription & support revenues, followed by a 44% jump in the professional services & other segment. 

  • The subscription & support business benefited from an increase in IT spending on digital transformation projects in 2021. Further, the same trend was witnessed in the first quarter of FY2023. While the tough macroeconomic outlook has negatively impacted the revenues of technology companies in Q2, we expect Salesforce to continue its growth trajectory.
  • Although professional services & other contributes only a minority share of the total revenues, it posted strong growth in FY2022. Further, the segment witnessed a 30% y-o-y rise in Q1 2023. We expect the same momentum to continue in the second quarter.
  • Overall, we forecast Salesforce’s revenues to remain around $31.8 billion for FY 2023.

Trefis estimates Salesforce’s fiscal Q2 2023 revenues to be around $7.65 billion, slightly below the $7.70 billion consensus estimate. 

(2) EPS is likely to edge past the consensus estimates

Salesforce Q2 FY2023 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, almost 3% above the consensus estimate of $1.02. Despite the growth in the top line, the net income decreased from $469 million to $28 million in the first quarter. It was primarily due to an unfavorable increase in the total expenses due to higher R&D (research & development) and marketing & sales costs. We expect the net income margin to see some improvement in the second quarter. Overall, Salesforce is likely to report an adjusted net income of $2.1 billion and annual GAAP EPS of $2.06 for FY 2023. 

 (3) Stock price estimate is 27% higher than the current market price

We arrive at Salesforce’s valuation, using an EPS estimate of around $2.06 and a P/E multiple of just below 117x in fiscal 2023. This translates into a price of $241, which is 27% above the current market price of around $190. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 CRM Return 3% -25% 177%
 S&P 500 Return 4% -10% 92%
 Trefis Multi-Strategy Portfolio 8% -7% 268%

[1] Month-to-date and year-to-date as of 8/17/2022
[2] Cumulative total returns since the end of 2016

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