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What to Expect from Salesforce's (CRM) Q2 Earnings Thursday

Mitchell Moore

Salesforce CRM stock is up 5.1% YTD, lagging behind the S&P 500’s 14% climb. Shares of Salesforce are also down roughly 14% from their 52-week highs. The customer relationship management firm is set to report its Q2 2020 earnings results after the close on Thursday, August 22.

Overview

Salesforce is a San Francisco based software company that specializes in customer relationship management. It offers a number of cloud-based platforms and applications to streamline workflow and better connect businesses to their customers. CRM’s platforms generally aim to help companies to acquire and retain customers through a variety of channels. For example, Sales Cloud allows businesses to bring all customer information together into one platform that handles lead generation, marketing, sales, and more, all while giving access to thousands of applications for customization.

The global leader in customer relationship management offerings currently has over 150,000 customers, including Amazon AMZN, American Express AXP, and Spotify SPOT. In Q1 2020 (this past quarter), CRM reported 24.3% year-over-year revenue growth. This saw it reach to $3.7 billion and continue its trend of impressive revenue growth. Salesforce has reported year-over-year revenue growth of 20% or higher in every quarter since 2006. A large portion of these quarters have seen growth above 30%, with a few over 50%.

Earnings growth has been similarly impressive as of late. From Q1 2018 to Q1 2020, earnings per quarter have jumped 967% from $0.06 per share to $0.58. Much of this growth was driven by increased sales of its Salesforce1 platform and the company’s Marketing Cloud. However, the chart below shows that CRM’s longer-term EPS estimates have moved in the wrong direction recently. 

Outlook

For Q2 2020, our Zacks Consensus Estimates show earnings shrinking by 33% over the year-ago period, to $0.47. Investors should note that Salesforce crushed Q2 fiscal 2019’s $0.47 per share estimate when it posted $0.71. Meanwhile, full-year earnings are projected to shrink 3.27%. Luckily, earnings are projected to climb 14.08% above our current year estimate in the following year.

CRM’s revenue is expected to increase by 20.4% to $3.95 billion this quarter. Full year projections call for 25% revenue growth over last year to $16.6 billion. Projections for fiscal 2021 show a similar revenue growth estimate of 24.8% to put Salesforce above the $20 billion line.

For this quarter, revenue from subscriptions and service is projected to climb. However, revenue from the sales, marketing, and service cloud platforms are projected to decline, which might contribute to Q2’s projected earnings decline.

Recent News

Salesforce announced on August 7 that it would acquire the field service company ClickSoftware for $1.35 billion in cash and stock. This is the most recent in a rapid string of acquisitions, six of which have occurred in 2019. Salesforce’s most recent acquisition is expected to help the company connect an entire service workforce on a single, centralized platform.

The ClickSoftware acquisition closely followed a much larger purchase. Salesforce on June 10 purchased Tableau for $15.7 billion in an all stock deal. Tableau is a prominent data visualization company that will help Salesforce streamline applications across many of its platforms.

Bottom Line

Salesforce currently holds a Zacks Rank #4 (Sell), as earnings estimates have been come down slightly in recent weeks. If Salesforce can continue to integrate its platforms and acquire companies to further this goal, it will likely continue to attract investors, even if its near-term earnings take a hit.

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