Salesforce Delivers Epic Quarter

Salesforce Stock at a Glance

• Current Morningstar Fair Value Estimate: $245.00
• Salesforce Stock Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Positive

Salesforce Earnings Update

Salesforce CRM delivered an epic quarter in what we believe is truly a seminal moment within its lifecycle. For its fiscal fourth quarter, the company delivered substantial upside to both revenue and profitability, which is an impressive achievement. However, the company’s pivot toward profitability over the next two years was well beyond our expectations. Further, the company has already expanded its share repurchase authorization to $20 billion, from $10 billion previously, while also disbanding its mergers and acquisitions committee as the company focuses on organic growth. We think this margin expansion is achievable and, in turn, we are raising our fair value estimate to $245 per share from $220. Shares look attractive even after an aftermarket pop, and the stock remain one of our top picks.

Strong Revenue Growth

Revenue grew 14% year over year (17% in constant currency) to $8.384 billion, compared with the high end of guidance of $8.032 billion. Both MuleSoft and Tableau license deals were strong in the quarter, which drove abnormal upside given the license model that is more prominent in those units and sees immediate revenue recognition. Current remaining performance obligations, or CRPO, grew 13% year over year in constant currency, which continues to lag revenue growth. The demand environment remains challenging, with small business notably weaker but vertical solutions stronger. Management noted eight of the company’s 13 cloud products had annual recurring revenue, or ARR, year-over-year growth of 50% or more.

Salesforce Posts Impressive Profitability

We were most impressed by Salesforce’s profitability, where the firm achieved a non-GAAP operating margin of 29.2%, versus 15.0% last year and our near-consensus estimate of 21.8%. Management previously guided for 25% margins in fiscal 2026, but now believes it will achieve 27% in fiscal 2024. Factors driving this performance and guidance include headcount reductions, real estate consolidation, and other ongoing efficiency measures.