After years of mistrust, Salesforce.com (NYSE:CRM) is slowly winning back investor confidence. The stock is currently trading close to the highest level it hit almost a year ago, helped by surging demand for its software and cloud-based services.
In its Q2 earnings report for fiscal year 2022, released last week, the San Francisco-based technology company beat analysts’ expectations, while providing an upbeat forecast for the remainder of the year. During the quarter, which ended in July, revenue rose 23% to $6.34 billion, the company said Wednesday in a statement. The average analyst prediction was $6.24 billion. Profit rose to $1.48 a share, topping the average estimate of 92 cents.
Sales in the current fiscal year will be as much as $26.3 billion, while analysts on average were projecting $26 billion.
The earnings beat for Q2 is the second in a row for CRM. It shows that the company’s acquisitions-heavy growth strategy is paying off, easing investor worries that recent deals won’t bring the kinds of synergies and competitive advantage that founder and CEO Marc Benioff is trying to achieve.
Last month, Salesforce completed the acquisition of Slack Technologies, which it bought for $27.7 billion in December. The purchase of Slack, whose platform makes it easy for offsite coworkers to communicate and coordinate work documents, came after its $14.7 billion acquisition of Tableau Software and $5.8 billion for MuleSoft, both in 2018.
Some analysts have raised concerns that after these big-ticket transactions, Salesforce will be competing directly with tech giant Microsoft (NASDAQ:MSFT). The software behemoth has been aggressively promoting its workplace collaboration platform, Teams. MSFT's videoconferencing and chat software had 250 million daily active users by the end of July, up from 145 million in April.
Benefiting From All-Digital, Work-Anywhere Environment
Salesforce’s latest data showed that Slack is also growing rapidly, benefiting from the lingering work-from-home trend. Slack’s sales surged 39% from the year-ago quarter and reached 41% year-over-year growth in customer deals valued at above $100,000. Sales for Slack Connect, a service that lets users send messages to users outside their immediate organization, roughly tripled.
“With the delta variant it’s made it more obvious that this all-digital, work-anywhere environment is something we are going to be in for a while,” Salesforce President and Chief Operating Officer Bret Taylor told Bloomberg.
“We are not shutting down the economy. We’re investing; companies are investing.”
Taylor added that nine of the company’s 10 biggest deals last quarter included products from Tableau, and eight from MuleSoft.
Barclays analyst Raimo Lenschow raised his price target for Salesforce shares to $320 from $291 while affirming his overweight rating after Saleforce’s Q2 earnings report. CRM stock closed on Friday at $266.53.
"Strength seems to be broad-based between the different clouds and geographies, and hence, suggests that it is sustainable," Lenschow said in a research note.
The note added:
"Management is also starting to deliver on its operating-leverage promises with another raise to operating and [free cash flow] growth guidance."
J.P. Morgan analyst Mark Murphy kept his overweight rating on Salesforce, while raising his price target to $310 from $250.
"Salesforce.com stands out from almost any pack as the pioneering trailblazer of the cloud computing movement," Murphy said, adding the company is a "multiproduct success story," with substantial scale and trajectory.
Of 48 analysts polled by Investing.com regarding their consensus estimate price target on CRM, the broad majority rated it 'Outperform.'
Chart: Investing.com
The average price target was $297.20, giving the stock an 11.5% upside.
Bottom Line
The last two quarterly reports have shown that Salesforce is firmly in control of its destiny. As well, its super growth cycle hasn’t run its course. Investors should feel confident in buying its shares. In our view, the stock will benefit from the company’s acquisitions.