Salesforce (CRM) Beats On Q2 Earnings, Ups FY20 Revenue View
Zacks Investment Research | Aug 22, 2019 10:33PM ET
salesforce.com Inc. (NYSE:CRM) delivered second-quarter fiscal 2020 non-GAAP earnings of 66 cents per share, comprehensively exceeding the Zacks Consensus Estimate of 47 cents. However, it declined from the year-ago quarter’s 71 cents.
Management mentioned that the settlement of reseller agreement with Salesforce.org adversely impacted its bottom line.
Meanwhile, revenues of $4.03 billion increased 22% year over year and also surpassed the Zacks Consensus Estimate of $3.95 billion. Moreover, the top line improved 24% in constant currency (cc). While the acquisition of Salesforce.org contributed $54 million to revenues, the same grew 20% in dollar terms and 21% at cc excluding the Salesforce.org buyout.
The company 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.
Driven by organic as well as inorganic growth from the acquisitions of Tableau, ClickSoftware and Salesforce.org, the company raised its revenue guidance for fiscal 2020. However, an unfavorable foreign exchange volatility remains an overhang.
Quarter in Detail
Coming to the company’s business segments, revenues at Subscription and Support rose (94% of total revenues) about 22% from the year-earlier period to $3.75 billion. Professional Services and Other revenues (6%) climbed 14% to $252 million.
Sales Cloud revenues ascended 13% year over year to $1.13 billion. Revenues from Service Cloud, one of the company’s largest and the fastest-growing businesses, also improved 22% to $1.09 billion. Moreover, Marketing & Commerce Cloud revenues surged 36% to $616 million.
salesforce’s Platform and Other revenues were up 28% to $912 million, which include Mulesoft’s subscription and support revenues of $159 million.
Geographically, the company witnessed revenue growth of 20% in the Americas (70% of total revenues), 27% in Asia Pacific (10%) and 30% in Europe (20%) on a year-over-year basis.
In the quarter under review, partners were engaged in 68% of its new business.
salesforce’s focus on building Customer 360 platform, both organically as well as through acquisitions, is a key driver. Salesforce Einstein in Customer 360 is boosting customer experience. The addition of AI capabilities like Einstein Translation, Einstein Vision and Einstein Voice to all salesforce applications is a tailwind. The company’s initiative in extending the power of Customer 360 with new services like Salesforce Blockchain and Salesforce Maps is also a positive.
Growing adoption of its free online digital learning platform, Trailhead, is an upside as well. Further, salesforce’s new partnership with Alibaba (NYSE:BABA) is making the management optimistic.
Operating Details
salesforce’s non-GAAP gross profit came in at $3.14 billion, up 24.2% from the prior-year quarter. Additionally, gross margin expanded 150 basis points (bps) to 78.5%.
Non-GAAP operating expenses escalated 32% year over year to $2.6 billion. As a percentage of revenues, operating expenses grew 500 bps to 64.2%.
salesforce posted non-GAAP operating income of $573 million, down 2% year over year. Operating margin too contracted 349 bps to 14.3%
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