Salesforce Earnings: Nice Rebound Quarter, With Lots of Excitement Around Virtual Agents

Key Morningstar Metrics for Salesforce

• Fair Value Estimate: $290.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Salesforce’s Earnings

We are raising our fair value estimate for Salesforce CRM to $290 per share from $285 after the company reported good second-quarter results while maintaining full-year revenue guidance and slightly raising profitability. Macroeconomic conditions continued to weigh on growth, even as the company delivered upside relative to our expectations on both the top and bottom lines.

Recent trends continued, with multi-cloud deals and vertical domain sales driving relative strength compared with expectations. Management was enthusiastic about its new Agentforce platform, which we think represents a good long-term opportunity to transition from a mostly human agent labor force to a mostly virtual agent pool over time. Monetization will be on a per-conversation basis. We still see some upside to shares, but the window has narrowed over the last three months.

We wish president and CFO Amy Weaver well, as she announced she is leaving the firm as soon as a successor is found, which may take six months. We have no doubt the firm will attract a variety of top-tier candidates. Weaver’s transformation of the company’s approach to both profitability and capital allocation is nothing short of remarkable.

Revenue rebounded nicely from last quarter’s sluggishness. Strength was evenly distributed across solutions, with multi-cloud performing well and certain verticals, such as health and life sciences or communications and media, also providing resiliency. Total revenue rose 8% year over year (9% in constant currency) to $9.325 billion versus the high end of guidance at $9.250 billion. Both subscriptions and professional services were ahead of our model, with the former growing 9% as reported and the latter contracting 6% year over year as customers continued taking on smaller projects. Current remaining performance obligations grew 10% year over year but decelerated 210 basis points. Still, CRPO outpaced revenue, which is a positive indicator.