Salesforce Earnings Beat but Guidance Disappoints

• Salesforce Q4 earnings and revenue beat estimates.

• Revenue guidance for fiscal 2025 disappoints.

• Company declares a first-ever dividend and increase buybacks.

Salesforce reported strong fourth quarter earnings ending on the 31 ^st of January beating market expectations; however, revenue guidance for the new fiscal year missed expectations. The company announced it will pay its first dividend of $0.40 per share and increased its share buyback program.

Salesforce Delivers Strong Q4 Earnings and Revenue

Salesforce adjusted earnings grew 36% to $2.29 per share vs. $2.26 expected. Revenue rose 11% year over year in the fourth quarter to $9.29 billion vs. $9.22 expected. Professional services revenue declined 9%. The company reported net income of $1.45 billion, or $1.47 per share. The software maker exceeded revenue estimates as it benefited from higher cloud spending.

Salesforce Forward Guidance Misses

Salesforce expects adjusted fiscal first-quarter earnings of $2.37 to $2.39 per share vs. $2.20 estimated, with $9.12 billion to $9.17 billion in revenue vs. $9.15 billion expected.

For the new 2025 fiscal year, the company projects adjusted earnings of $9.68 to $9.76 vs. $9.57 expected. Salesforce sees its annual revenue at $37.7 billion to $38.0 billion, missing analysts’ estimates of $38.62 billion. The guidance implies 8-9% growth for the full year.

The downbeat full-year guidance indicates a likely slowdown in cloud and tech as many corporations tightened their spending on software. Cloud data analytics Snowflake also forecast first-quarter revenue below estimates adding to the uncertainties cloud firms face this year.

Salesforce is investing in new artificial intelligence (AI)-based features to help boost sales of its customer relations management software. The company recently launched a copilot feature that uses generative AI to answer questions and create content. While demand for AI products is huge, the guidance doesn’t show much effect from that category. Adoption of AI; however, should contribute to margin expansion over time.

Salesforce Announces First Quarterly Dividend

To make up for the lower level of growth the company announced its first-ever dividend. The Board of Directors declared a cash dividend of $0.40 per share, payable on the 11 ^th of April 2024. The company intends to pay a cash dividend on a quarterly basis going forward, subject to market conditions and approval by the Board of Directors.

Apart from the dividend, the company demonstrated its commitment to return capital to shareholders by increasing its ongoing share buyback plan by $10 billion to a total of $30 billion. Investors were impressed with the company’s profitability, the first dividend and the increased share buybacks.

Salesforce Technical Analysis

Source: TradingView

Salesforce soared 97% in 2023 and is up 17% YTD. After bottoming in December 2022 at $126.34 the price rallied strongly with Thursday’s price action rebounding close to its all-time high of $311.75.

While the Relative Strength Index (RSI) is approaching overbought territory, which suggests that the current short-term rally may run out of steam soon, the long-term outlook remains bright.

The price action and the momentum conditions are constructive, and we are of the view that new record highs are in sight. A break above the previous all-time high is likely and price levels in the range between $340 - $345 appear easily achievable over the medium to long-term.

Conclusion

Salesforce experienced deceleration in growth over the past year, reflecting the challenges the software industry is facing. While Salesforce revenue needs to re-escalate, the company has focused on improving profitability by cost reductions, which is already improving profit margins. High inflation, high interest rates and fears of a recession supressed business spending on IT projects.

With a tight cost structure, improvement in macroeconomic conditions in the year ahead could reverse the revenue growth trend. Salesforce has a diversified revenue base, which would help the long-term sustainability of growth. In fiscal 2025 revenue from generative AI products is likely to increase only marginally; however, over time, the integration of AI into these products is likely to pay off.