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Stock Analyst Update

Reasonable Quarter, Lower Outlook For Salesforce

We are maintaining our fair value estimate of $202 for wide-moat Salesforce and view shares as attractive.



For the first quarter, Salesforce (CRM) reported mixed results on headline figures relative to our and Street expectations as well as its own guidance. Guidance was light for the second quarter and full year measures were guided down as well. All things considered in the face the COVID-19 pandemic, we think results are solid, with a lowered outlook prudent and generally consistent with peers. On the call management noted that the month of April ended better than anticipated at the beginning of that month. Mark Benioff, CEO, proclaimed “I'm already really inspired by the bookings numbers that I started to see and the pipeline numbers. So we're quite optimistic.” We think this is a harbinger of an acceleration in the broad digital transformation effort that is already underway, as companies are confronted with the reality that they lack the flexibility to quickly shift to remote work. We are maintaining our fair value estimate of $202 for wide-moat Salesforce and view shares as attractive.

Revenue grew 30% year over year to $4.865 billion, which was below both guidance and our estimate, but above CapIQ consensus. We see strength in the sales cloud and professional services, while service and marketing clouds, as well as platform and other, were shy of our model for the quarter.

After building margin momentum last quarter, non-GAAP operating margin surprised to the downside, and was 13.1%, compared with 18.2% a year ago. We expected a more modest decline based on several small acquisitions in the last year. However, the company paid $250 million in one-time costs for guaranteed partial commissions, lease impairments, penalties for event cancellations, COVID-19 related donations, all of which were offset by $75 million in savings from lower travel and entertainment expenses. For the year management believes it can maintain flat margins compared with fiscal 2020. Non-GAAP EPS was $0.70, which was in line with guidance and was aided by investment gains and a tax benefit.


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Dan Romanoff does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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