salesforce (CRM) Q3 Earnings and Revenues Surpass Estimates

salesforce.com Inc. CRM delivered third-quarter fiscal 2020 non-GAAP earnings of 75 cents per share, beating the Zacks Consensus Estimate by 13.64% and also the year-ago quarterly figure by 23%.

Meanwhile, revenues of $4.51 billion surged 33% year over year and also surpassed the Zacks Consensus Estimate of $4.436 billion. Moreover, the top line improved 34% in constant currency (cc). While the acquisition of Salesforce.org contributed $80 million to the company’s revenue stream, Tableau buyout generated $327 million. Excluding the acquired revenues from Tableau and Salesforce.org, total revenues grew 21% in dollars and 22% at cc.

However, adverse foreign exchange volatility is a persistent challenge. The company experienced FX headwinds of approximately $29 million in the third quarter.

It is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions led to better-than-expected results.

Quarter in Detail

Coming to the company’s business segments, revenues at Subscription and Support rose about 34% from the year-earlier period to $4.24 billion. Professional Services and Other revenues climbed 22% to $274 million.

Sales Cloud revenues ascended 15% year over year to $1.17 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 24% to $1.14 billion. Moreover, Marketing & Commerce Cloud revenues jumped 32% to $640 million.

salesforce’s Platform and Other revenues soared 73% to $1.29 billion. Tableau contributed nearly $308 million while MuleSoft revenues of $185 million grew 77% year over year.

Geographically, the company witnessed revenue growth of 33% in the Americas (71% of total revenues), 28% in the Asia Pacific (10%) and 42% in Europe (19%) on a year-over-year basis at cc.  Year-over-year growth in the Americas and the EMEA is driven by the acquisition of Tableau.

Operating Details

salesforce’s non-GAAP gross profit came in at $3.59 billion, up 37.7% from the prior-year quarter. Additionally, gross margin expanded 260 basis points (bps) to 79.5%.

salesforce posted non-GAAP operating income of $874 million, up 52.8% year over year.  Operating margin also expanded 250 bps to 19.4%

salesforce.com, inc. Price, Consensus and EPS Surprise

salesforce.com, inc. Price, Consensus and EPS Surprise

salesforce.com, inc. price-consensus-eps-surprise-chart | salesforce.com, inc. Quote

Balance Sheet & Cash Flow

salesforce exited the reported quarter with cash, cash equivalents and marketable securities of $6.53 billion compared with $6.04 billion in the prior reported quarter.

As of Oct 31, 2019, total unearned revenues were $6.858 billion, up 27.6% on a year-over-year basis.

salesforce generated operating cash flow of  $298 million, down from $437 million sequentially.

Guidance

For fiscal 2020, revenues are predicted between $16.99 billion and $17 billion compared with the earlier expectation between $16.75 and $16.9 billion, marking 28% growth year over year.  Tableau is envisioned to generate $650 million while around $220 million is anticipated to be contributed by Salesforce.org. Excluding these integrations, growth is likely to be around 21%.

The company forecasts more than $160 million of foreign exchange headwinds in the full fiscal.

The company raised its full-fiscal earnings per share outlook to $2.89-$2.90 from the $2.82-$2.84 range envisioned earlier.

It assumes non-GAAP operating margins of 16.6% to contract 50 bps on a year-over-year basis. Excluding the impact of these consolidations, the company expects non-GAAP operating margin to expand more than 150 bps.

Operating cash flow is expected to increase 22-23% year over year.

Coming to the fiscal fourth quarter, Tableau and Salesforce.org are likely to contribute approximately $320 million and $80 million, respectively, to revenues. Revenues are guided between $4.743 billion and $4.753 billion, indicating 32% growth from the prior-year reported number.

However, non-GAAP earnings per share are estimated in the band of 54-55 cents for the fiscal fourth quarter.

Coming to first-quarter fiscal 2021, revenues are projected between $4.800 billion and $4.835 billion, suggesting 28-29% growth from the year-ago reported figure.

For fiscal 2021, revenues are expected between $20.8 billion and $20.9 billion, implying 22-23% growth from the year-earlier reported figure.

Zacks Rank & Other Stocks to Consider

salesforce currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are Alteryx, Inc. AYX, Fortinet, Inc. FTNT and CommVault Systems, Inc. CVLT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Fortinet and CommVault Systems is currently estimated at 39.9%, 14% and 10%, respectively.

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