The Ohana rallies back.
Shares of the software giant popped nearly 6% in pre-market trading on Thursday following a better than expected second quarter and upbeat earnings call where AI efforts took center stage.
“We are very thirsty to make sure that Salesforce is the No. 1 AI CRM, and we have done a lot organically to do that in the last six months,” Salesforce CEO Marc Benioff said to analysts on the company’s earnings call.
The earnings rundown
Here are the key numbers that Salesforce reported as compared to analysts’ estimates, according to Bloomberg data:
Revenue: $8.60 billion versus $8.53 billion estimated
Adjusted EPS: $2.12 versus $1.90 estimated
Adjusted operating margin: 31.6% versus 28.2% estimated
Free cash flow: $630 million versus $445.1 million estimated
Salesforce’s fiscal second quarter revenue beat represented an 11% year-over-year jump.
Additionally, the company raised its 2024 revenue outlook to $34.7 billion to $34.8 billion, after previously seeing $34.5 billion to $34.7 billion, beating estimates of $34.66 billion.
Notably, the company’s adjusted income from operations came in at $2.72 billion, above estimates of $2.42 billion, clocking a 77% year-over-year jump.
What we’re watching: Salesforce’s AI
AI came into this earnings cycle as the buzzword for Salesforce, amid recent bullish comments on the technology’s potential by CEO Marc Benioff to Yahoo Finance’s executive editor Brian Sozzi. Strong results last week out of chip king Nvidia further ratcheted up expectations on Salesforce’s quarter.
Benioff again touted the company’s leadership and early AI moves on the earnings call.
“We’re now driving our AI transformation,” he said. “We’re pioneering AI for both our customers and ourselves, leading the industry through this incredible new innovation cycle.”
What analysts are saying post-earnings:
“Against relatively low expectations, 2Q results were solid with CRM delivering healthy upside to top and especially bottom-line performance even after adjusting for favorable FX (~1pt). The results were mainly driven by improved execution (and perhaps some pull-ins) as opposed to an improvement in the macro. While we were satisfied with 2Q/FY24 upside with cRPO bookings continuing to post low DD y/y growth, we don’t think Salesforce is out of the woods yet particularly with a continued tough macro environment and a COVID-renewal pool likely to drive further slowing growth in 2H coupled with re-investments back into the business. We expect shares to trade up modestly, but we’re comfortable staying on the sidelines with margin improvements having already largely played out, with stabilizing / accelerating growth or significant cost cuts unlikely. Our PT increases to $229 as we modestly take up our estimates.” -Citi analyst Tyler Radke
“But business momentum by our measurement, which we acknowledge is sometimes more art than science, deteriorated in F2Q on a two-year stack basis. Guidance implies things will get better, despite no clear indication of that happening. Therefore, we see some risk in F2H, which requires acceleration in New ACV, especially in F4Q, the company’s largest quarter by far. Additionally, management said that macro challenges have persisted, and also not to expect any material impact from the recently announced broad-based pricing increases. Therefore, guidance likely requires improved execution, which is not a given.” -Guggenheim analyst John DiFucci
“While Salesforce is clearly not baking in a meaningful AI benefit to FY24 results, we continue to view the company as a likely AI-beneficiary, considering the depth of customer data the platform possesses and its emphasis on “AI trust”. Overall, we think the quarter displays Salesforce’s ongoing commitment to operational efficiency, and as we reach the point of normalization/stabilization in deal cycles the company will be positioned to deliver top-line acceleration. We maintain our Buy rating but are raising our target price to $275.” -J. Parker Lane
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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