☁️ Is Salesforce’s Management Being Conservative?

Boeing gets China boost; Snowflake soars.

Hey Global Investor! Here’s what you need to know before the US markets open.

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☁️ Salesforce: No Room To Slack?

Is Salesforce (CRM) slowing down? Is the management being uncharacteristically conservative? These were the big questions in investors’ minds. The EPS guidance for the current quarter was disappointing, even if the company beat analyst expectations in Q3. That was enough for the shares to drop! (Tweet This)

Tailor-Made For Taylor

Salesforce reported revenue growth of 27% year-on-year in Q3. The topline also included the acquisition of Slack, which had its first full quarter as a Salesforce entity.

Key Highlights From Q3:

  • Revenue: $6.86B Vs $6.80B expected
  • Sales Cloud revenue: Up 17% Y-o-Y to $1.54B
  • Service Cloud revenue: Up 20% Y-o-Y to $1.66B
  • EPS: $1.27 Vs $0.92 expected

Salesforce expects to earn $7.22B for the current quarter, in line with analyst expectations of $7.22B. However, it expects EPS to fall to ~$0.72, much lower than the $0.81 projected by analysts.

Salesforce’s assured future revenue (meaning this is under a contract) in the next 12 months rose 23% year-on-year to $18.8B, higher than the estimate of $18.7B. The company expects this number to grow 19% in the current quarter Y-o-Y, a tad lower than the Street estimate of 21%.

Back in 2016, Salesforce had acquired a productivity software company called Quip. As part of the deal, Quip’s founder Bret Taylor joined Salesforce, who rose to become the company’s President and COO. Why is his name familiar?

Earlier this week, he was named the Chairman of Twitter’s board. To ensure his longevity in the company, Salesforce promptly elevated him as Salesforce’s Co-CEO. This sudden promotion caused some commotion among Salesforce’s investors that CEO Marc Benioff might be looking to retire.

However, Benioff was quick to deny any such speculation, saying that he will “never leave” the company he had co-founded over two decades ago. Before Taylor, Keith Block was the company’s Co-CEO from August 2018. He stepped down in February 2020.

The $50B Dream

Q3 was the first full quarter of Slack reporting results as a Salesforce enterprise (Slack was acquired earlier this year for $27.7B). The number of Slack customers who spent over $100K was up 44% year-on-year, while the adoption of Slack Connect was up 176% from last year. The company had guided Slack to hit revenues of $250M this quarter. It reported a topline of $280M. 

Slack is also grabbing the attention of retailers like Saks and ridesharing and food delivery app Grab, who are using it to automate workflows and connect with their partners. As more companies are continuing to adapt to the “work-from-anywhere” trend and as Covid-19 concerns continue to persist, Salesforce believes that the move to acquire slack “could not have come at a better time.”

While business has been brisk, so has been pressure from the competition. Microsoft’s AzureAmazon’s AWS, and Google Cloud are all on the company’s tail. Microsoft’s Azure Public Cloud grew 50% in Q3, while Google Cloud’s revenue rose 45% year-on-year to ~$5B.

All said and done, the conservative guidance provided by the management triggered an adverse investor reaction. The stock dropped 12% on Wednesday. The shares are now up 14% for the year, compared to the 51% jump seen by Microsoft and the 63% surge seen by Alphabet.

The management team has set a target of crossing $50B in revenue by FY2026. It has its task cut out if it has to live up to those expectations!

Market Reaction
CRM ended at $261.2, up 3.86%. This, after Wednesday’s 12% drop.

Company Snapshot 📈

CRM $261.20 +9.70 (3.86%)

Analyst Ratings (48 Analysts) BUY 83%  HOLD 17%  SELL 0%

Newsworthy 📰

Upskilling: Kroger CEO says new cooking skills, bigger holiday gatherings are lifting grocery sales (KR +11.14%)

Timeline: China’s aviation regulator expects Boeing’s 737 MAX to resume flights around year-end (BA +7.54%)

Earnings: Snowflake soars on strong Q3 revenue and Q4 guidance (SNOW +15.85%)

Later Today 🕒

  • Big Lots Inc. Earnings (BIG)
  • Dole Plc Earnings (DOLE)
  • Hibbett Inc. Earnings (HIBB)
  • IES Holdings Inc. Earnings (IESC)
  • Genesco Inc. Earnings (GCO)
  • Copart Inc. Annual General Meeting (CPRT)
  • Affirm Inc. Annual General Meeting (AFRM)
  • 7:00 PM IST: Non-Farm Payrolls & Unemployment Rate
  • 8:15 PM IST: Markit Services PMI

Today’s Market Terminology: Forex Gain / Loss

A Forex Gain / Loss occurs when a company buys and sells goods and services in a foreign currency, and that currency fluctuates relative to the home currency in either direction

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