Salesforce reported Q4 earnings and revenue that just beats estimates as cost-cutting improved profit margins. Salesforce revenue growth for fiscal 2025 came in below expectations which made its stock fell. Salesforce shares fell by 6% initially but in extended trading it went up by 1% on Wednesday after the business software maker issued a light revenue forecast for the new fiscal year. Salesforce is also going to start paying a dividend at 40 cents per share.
However, by the end of the conference call, Salesforce shares erased those losses and moved up slightly, before slipping back into the red, making one wonder if it is the time to book profit, hold or buy. The stock is up about 14% this year as of Wednesday’s close after nearly doubling in 2023.
Salesforce earnings report
Salesforce earnings report compared with estimates from LSEG:
Salesforce earnings per share: $2.29 adjusted vs. $2.26 expected
Salesforce revenue: $9.29 billion vs. $9.22 billion expected.
Salesforce’s revenue grew 10.8% year over year in the quarter, which ended January 31.
Salesforce professional services revenue: It declined 9%.
Salesforce net income of $1.45 billion, or $1.47 per share, compared with a loss of $98 million, or 10 cents per share.
“Over the past two quarters, I’m happy to say we’ve seen improved bookings growth,” Amy Weaver, Salesforce’s finance chief, said on a conference call with analysts.
Excluding the after-hours move, Salesforce shares have risen about 14% so far this year, while the S&P 500 index has gained 6% during the same period.
Is salesforce a good stock to buy?
Though the results were not that great, but it was a solid quarter overall for Salesforce, with the company beating most key metrics. Operating margins fell slightly short of Wall Street’s high expectations, but the expansion on an annual basis was significant, and a testament to management’s change last year in response to activist investors who sought better profitability.
Spiff acquisition
During the quarter, Salesforce said it would acquire sales commission software startup Spiff for undisclosed terms and was starting to sell its products on the Amazon Web Services Marketplace.
Salesforce margin expansion
CEO Marc Benioff is projecting fiscal 2025 to be another year of margin expansion. Salesforce management said it’s seeing “green shoots” in some areas as every customer wants to find ways to use AI and be more productive.
The balance of margin expansion with the potential for fast topline growth is why Salesforce can be a company to own for at least the next few years.
For a stock that’s growing earnings per share about 20% but is trading at about $31 ahead of forward estimates, its valuation is also low.
Buying opportunity with low valuation
If the stock falls again on Thursday and continues to decline in the coming days or weeks, it would be a good stock to buy. As Salesforce continues to see strong adoption of its so-called “full cocktail” of clouds. Salesforce sees 80% growth in deals worth more than $10 million in FY2024.
Salesforce new business growth
Sales in the U.S. increased 10% year over year, with EMEA (Europe, the Middle East and Asia) up 12%. Africa), and 22% in the Asia Pacific region (APAC). On the earnings call, CFO Amy Weaver called for strong new business growth in Latin America, India and Canada, while pointing to disruptions in parts of EMEA.
Increasing cloud demand
Growing interest in AI is driving new demand for the cloud. In fact, the company said that Data Cloud has become its fastest growing product ever. The company also expects to see a wave of interest in its Einstein Copilot, a conversational AI chatbot that it made available to the public on Tuesday.
Increasing cash flow
Cash flow is increasing faster than expected. In the three months, operating cash flow rose 22% year-on-year to $3.4 billion, while free cash flow came to $3.25 billion. This strong cash generation has enabled Salesforce to buy back enough stock to manage weaknesses related to stock-based compensation.
Salesforce dividend
Salesforce’s cash returns to shareholders are also no longer limited to buybacks. The company initiated its first quarterly dividend of 40 cents per share. Salesforce’s dividend is payable as of April 11 to shareholders at the close of business on March 14.
Salesforce ended its fiscal year 2024 on a strong note with earning report showing the enterprise software giant continued to deftly balance sales and profit growth. The company also boosted its stock buyback program, and management even paid its first dividend, showing confidence in the business.
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