Salesforce (NYSE: CRM) is scheduled to report its fiscal Q3 2023 results on Wednesday, November 30. We expect Salesforce to edge past the consensus estimates of revenues and earnings. The company surpassed the street expectations in the last quarter, with total revenues of $7.7 billion – up 22% y-o-y. It was primarily due to a 21% rise in the subscription & support revenues, which benefited from a 15% rise in sales cloud, 14% in service cloud, 17% in marketing & commerce cloud, 53% in platform & other, and a 12% increase in data sub-segments. Notably, Slack technologies also contributed $376 million to the top line, included in the platform & others. We expect the same trend to continue in the third quarter (Note – Salesforce’s FY’22 ended on January 31, 2022. Q3 FY’23 refers to the quarter that ended on October 31, 2022).
Our forecast indicates that Salesforce’s valuation is $224 per share, which is 46% above the current market price of $153. Our interactive dashboard analysis on Salesforce’s Earnings Preview has more details.
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(1) Revenues expected to edge past the consensus estimates
Salesforce’s revenues grew 23% y-o-y to $15.1 billion in the first half of FY 2023.
- The subscription & support revenues grew 22% y-o-y in the first two-quarters of FY2023. It was mainly due to a 16% rise in sales cloud & service cloud sub-segments. We expect the segment to continue its growth trajectory in Q3.
- The professional services & other revenues improved by 33% in the first half of FY2023, partly due to the recent acquisitions. We expect the same momentum to continue in the third quarter.
- Overall, we estimate Salesforce’s revenues to remain around $31.1 billion for FY 2023.
Trefis estimates Salesforce’s fiscal Q3 2023 revenues to be around $7.88 billion, slightly above the $7.82 billion consensus estimate.
(2) EPS is likely to remain marginally ahead of the consensus estimates
Salesforce Q3 FY2023 adjusted earnings per share (EPS) is expected to be $1.23 per Trefis analysis, just above the consensus estimate of $1.21. Despite improvement in the revenues, the adjusted net income declined by 90% y-o-y to $96 million in the first half of the year. It was partly due to the negative impact of a higher cost of revenues and an increase in operating expenses, and partly due to lower gain on strategic investments – down from $814 million to $52 million. We expect the same trend to continue in the third quarter. Overall, Salesforce is likely to report an adjusted net income of $1.65 billion and annual GAAP EPS of $1.64 for FY 2023.
(3) Stock price estimate is 46% more than the current market price
We arrive at Salesforce’s valuation, using a GAAP EPS estimate of around $1.64 and a P/E multiple of just below 137x in fiscal 2023. This translates into a price of $224, which is 46% above the current market price of around $153.
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
|S&P 500 Return||4%||-16%||80%|
|Trefis Multi-Strategy Portfolio||4%||-19%||221%|
 Month-to-date and year-to-date as of 11/28/2022
 Cumulative total returns since the end of 2016