Analyst Note| Dan Romanoff, CPA |
Wide-moat Salesforce reported strong fiscal first-quarter results, including upside to both revenue and non-GAAP EPS guidance. The company’s second-quarter revenue guidance was robust and we are pleased to see the firm once again raise its full-year revenue target despite a slightly later closing for the Slack deal and therefore a lower Slack revenue contribution than we expected. CEO Marc Benioff was bullish on the pipeline and noted enthusiastically the various internal records the company was setting. We are not surprised by continued strength even as the pandemic-driven lockdowns fade, but we do think results from Salesforce should help buoy the software group, which has sold off this year. Deal sizes continue to grow larger as conversations are increasingly about digital transformation of a customer’s entire organization rather than just a specific area. Customers remain focused on the postpandemic operating environment and want flexibility, which reinforces the rationale for the Slack acquisition, which is now expected to close at the very end of the second quarter. We are raising our fair value estimate to $273 per share from $265 based on quarterly strength and higher guidance. We continue to see the shares as undervalued.