The News: Salesforce shares rose 5% in extended trading on Thursday after the cloud software maker issued earnings and guidance that surpassed analysts’ expectations.
Here’s how the company did:
- Earnings: $1.21 per share, adjusted, vs. 88 cents per share as expected by analysts, according to Refinitiv.
- Revenue: $5.96 billion, vs. $5.89 billion as expected by analysts, according to Refinitiv.
Revenue grew 23% year over year in the fiscal first quarter, which ended April 30, the company said in a statement. In the previous quarter revenue increased by 20%.
Analyst Take: The results in the first quarter of its fiscal ’22 represents a continuation of sound results from Salesforce, which indicates continued strong demand for business applications.
While the overall results delivering 23% revenue growth for the quarter, this follows a 24% revenue growth for its FY ’21. The company also outperformed EPS, and the market responded kindly with a solid after hours jump in the share price.
Segment Performance Shows Platform Momentum and Stable Growth Throughout
While the Sales Cloud still represents the best known component of the Salesforce portfolio, the most pronounced growth in the quarter came from the Platform and the Marketing & Commerce Cloud. This builds on a multi-quarter trend that has seen these segments grow faster than its core Sales and Service clouds. The platform, which has seen significant growth since the acquisitions of Mulesoft and Tableau, has usurped the sales and service clouds to become consistently Salesforce’s largest revenue generator and among its fastest growing segments. This segment will be an even larger component of Salesforce’s revenues after the completion of the Slack acquisition and I believe this trend will continue.
An interesting note of this quarter’s earnings was the breakout of MuleSoft and Tableau revenues. Providing this data gave investors a better idea of the performance of these large acquisitions and gave clarity as to the contribution they make to the platform category. With MuleSoft coming in at $380 million for the quarter and Tableau at $394, it shows the platform revenue is well diversified, and the respective growth rates of 49% and 38% YoY is a good indicator that the acquisitions are performing well.
Growth Across Regions Led by APAC, But Smooths Globally
With Salesforce growth in APAC and EMEA slightly outpacing Americas, but showing steady performance and growth in all regions, I view this as a key to sustain 20%+ growth throughout the remainder of FY ’22.
$181 Billion TAM Provides Runway for Growth
I continue to see the multiyear trajectory of the TAM with an 11% CAGR as a promising runway for growth and the company will need this growth to meet its long-term goals. With CEO Marc Benioff’s aggressive target of $35 billion by 2024, it would take growth close to 20% for the next three years to meet that objective.
The good news is that the opportunity is there with the company’s impending acquisitions, expanded TAM and the growth of demand for SaaS, however, it will take strong consistent performance for the next 12 quarters.
Overall Impressions of Salesforce FY ’22 Q1 Results
The results and longer term outlook remain positive for Salesforce. The company will need to perform well in a sustained matter to grow at the pace of its ambitions. But as I suggested, integration and growth of its inorganic investments will be a catalyst for top line growth.
I continue to be encouraged by the company’s investment and focus on platform and hybrid cloud. This high-growth component of the business remains critical to its longer term growth. This quarter’s reveal of MuleSoft and Tableau revenue indicate deeper integration is taking hold. I am also eager to see how the $27 billion slack acquisition can be efficiently returned to shareholders through sales, innovation, integration, and intrinsic value.
Overall, it is growth all around. Salesforce is doing what Salesforce does in that capacity, which should encourage investors about its prospects in the future.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.