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Salesforce Earnings: Strong Margins, Share Buybacks, CRPO Growth Drive Good Quarter

Salesforce logo on building.

Salesforce CRM delivered another good quarter with revenue and profitability ahead of our expectations. Based on quarterly upside and updated guidance, we refined our model toward slightly better profitability, and as a result we raise our fair value estimate to $255, from $245. We still see some upside from here for shares.

For the fiscal year, Salesforce raised its guidance on both the top and bottom lines. Improved capital returns to shareholders in the form of share buybacks are driving share count down this year, as the firm repurchased $1.9 billion worth of stock during the quarter. Revenue upside was impressive in a subdued spending environment, but margins again stole the spotlight. On the flip side, growth continues to decelerate, even if the pace seems to have moderated, and professional services remain a drag on overall growth.

Second-quarter revenue grew 11% year over year (11% in constant currency) to $8.60 billion, versus the high end of guidance of $8.53 billion. Like the last quarter, strength was driven by MuleSoft, a resilient core business, and a modest currency tailwind. Current remaining performance obligations grew 11% year over year in constant currency, which is consistent with revenue growth after being at a deficit for much of fiscal 2023. Professional services remain weak and the overall demand environment remains challenging. Management noted once again that eight of the firm’s 13 clouds had annual recurring revenue, or ARR, year-over-year growth of 50% or more.

We see a path for margins to continue to expand even as the firm invests in near-term AI innovation. Profitability continues to shine, as Salesforce produced a non-GAAP operating margin of 31.6%, versus 19.9% last year and our estimate of 27.9%. The firm hit its goal of 30% operating margin three quarters early. While better revenue helped, the major restructuring actions from January 2023 provided margin support this quarter and should contribute similarly for the rest of the year.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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