Salesforce.com Inc. shares rallied Friday after a strong earnings report and forecast, but analysts debated whether the cloud-based customer-relationship-management company’s operating margins could be even better.
On Friday, Salesforce CRM,
Late Thursday, Salesforce turned in another beat-and-raise quarter and Salesforce Chairman and Chief Executive Marc Benioff said that it was on track for its fiscal 2026 forecast of $50 billion in revenue. The company also announced its annual Dreamforce convention would be held in-person this year at multiple global sites.
Analysts, however, latched onto the company raising its operating margin 30 basis points for the year to 18%, with part of that expansion driven by the company’s $27.7 billion acquisition of Slack Technologies Inc. WORK,
Citi Research analyst Tyler Radke, who has a neutral rating and a $250 price target, called the earnings beat “typical,” and wasn’t impressed by the margin forecast.
“While the Q1 profitability upside and qualitative commentary suggested more of a friendly tone towards margins, the lack of a meaningful guidance raise (just 30 bps for FY22) and implied 2H [earnings before interest and taxes] guidance below the Street reinforces Salesforce’s ‘margin is a choice’ philosophy which could weigh on shares,” Radke said.
Jefferies analyst Brent Thill, who has a buy rating and a $300 price target, also was critical of the margin forecast.
“Although margins were guided higher to 18% for F22E, they still materially lag peers like [Adobe Inc.] ADBE,
Cowen analyst J. Derrick Wood, who has an outperform rating and a $290 price target, was a little less critical but said there could be improvement all the same.
“We are encouraged by 1Q results, namely the large deal activity and greater execution from acquired products, exemplifying CRM’s ability to cross-sell assets into its large installed base,” Wood said. “Better than expected margins were also encouraging & while we think there is more work to improve the margin narrative, some permanence of remote work seems like it can drive a sustainably higher level of efficiencies.”
Stifel analyst Tom Roderick, who has a buy rating and a $295 price target, turned his attention to the surge in big deals at Salesforce, owing to past acquisitions such as Tableau Software in 2019 and MuleSoft in 2018.
“One of the key highlights of the quarter was a record number of first-quarter
seven-figure transactions, which we believe underscores the strategic nature of Salesforce’s solutions and the sizable opportunity for digital transformation projects across nearly all industries,” Roderick said. Transactions of more than $1 million soared 120% at Salesforce from a year ago, the company reported.
Raymond James analyst Brian Peterson, who has a strong buy rating and a $280 price target, turned his attention to the large deal activity rather than margins.
“While bears may focus on the lower quality revenue beat (almost all driven by services upside), we’re encouraged that recent acquisitions are driving large deal activity (particularly Tableau),” Peterson said. “We’re cognizant that investors continue to ask for margin expansion, although it’s hard to find a more compelling risk/reward in software for a company with delivering 20%+ growth at this scale.”
Over the past 12 months, Salesforce shares have grown 32%, while the iShares Expanded Tech-Software Sector ETF IGV,
Late Thursday, Salesforce forecast adjusted second-quarter earnings of 91 cents to 92 cents a share on revenue of $6.22 billion to $6.23 billion, and fiscal 2022 earnings of $3.79 to $3.81 a share on revenue of $25.9 billion to $26 billion.
That prompted analysts to collectively raise their consensus to 91 cents a share on revenue of $6.23 billion for the quarter, up from a previous estimate of 87 cents a share on revenue of $6.17 billion, and to $3.70 a share on revenue of $25.91 billion, up from a previous $3.44 a share on revenue of $25.75 billion.
Of the 45 analysts who cover Salesforce, 36 have buy or overweight ratings and nine have hold ratings. Of those, eight raised their price targets while one lowered theirs, resulting in an average price target of $277.83, compared with a previous, $275.34, according to FactSet data.
