Salesforce Stock To Edge Past The Consensus In Q1

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Salesforce (NYSE: CRM) is scheduled to report its fiscal Q1 2024 results on Wednesday, May 31, 2023. We expect Salesforce to edge past the consensus estimates. The company surpassed the street expectations in the last quarter, with total revenues increasing 14% y-o-y to $8.38 billion. It was because of a 14% increase in the subscription & support revenues and a 19% rise in the professional services & other segment. The subscription & support revenues benefited from growth in all the sub-segments – sales cloud, marketing & commerce cloud, service cloud, platform & other, and data. We expect the same trend to continue in Q1 (Note – Salesforce’s FY’23 ended on January 31, 2023. Q1 FY’24 refers to the quarter that ended on April 30, 2023).

Our forecast indicates that Salesforce’s valuation is $219 per share, which is 2% above the current market price of $215. Our interactive dashboard analysis on Salesforce’s Earnings Preview has more details. 

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(1) Revenues expected to beat the estimates

Salesforce’s revenues grew 18% y-o-y to $31.35 billion in FY 2023. 

  • The subscription & support segment generates more than 90% of the total revenues. It increased by 18% y-o-y in 2023. We expect the Q1 results to be on similar lines.
  • The professional services & other revenues improved by 27% over the same period. We expect the growth trajectory to continue in Q1.
  • Overall, we forecast Salesforce’s revenues to remain around $34.6 billion for FY 2024.

Trefis estimates Salesforce’s fiscal Q1 2024 revenues to be around $7.72 billion, slightly above the $7.62 billion consensus estimate. 

(2) EPS to marginally beat the consensus estimates

Salesforce Q1 FY2024 adjusted earnings per share (EPS) is expected to be $1.53 per Trefis analysis, 2% above the consensus estimate of $1.50. Despite positive growth in revenues, the adjusted net income fell by 86% y-o-y to $208 million in FY2023. It was partly due to higher expenses as a % of revenues and partly because of a drop in gain on strategic investments from $1.2 billion to -$239 million. We expect the net income margin to see some improvement in Q1. Overall, Salesforce is likely to report an annual GAAP EPS of $2.22 for FY 2024. 

 (3) Stock price estimate is 2% more than the current market price

We arrive at Salesforce’s valuation, using a revenue-per-share (RPS) estimate of around $33.74 and a P/S multiple of just above 6x in fiscal 2024. This translates into a price of $219, which is 2% above the current market price of around $215. 

Note: P/S Multiples are based on Share Price at the end of the year and expected Adjusted Revenue per share for the full year 

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 Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CRM Return 9% 62% 215%
 S&P 500 Return 1% 10% 88%
 Trefis Multi-Strategy Portfolio 1% 10% 245%

[1] Month-to-date and year-to-date as of 5/29/2023
[2] Cumulative total returns since the end of 2016

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