Salesforce (NYSE: CRM) stock was down 3.3% as earnings came in weaker than analysts had expected. Analysts had predicted earnings per share to come in at $1.29, instead, the earnings per share came in slightly lower at $1.20. Despite the weaker-than-expected earnings, Salesforces' revenue came in at $7.72 billion, increasing by 22 percent y-o-y. Salesforce largely deals in cloud-based customer relationship management software and applications that provide sales, customer service, and marketing automation tools.
According to management, the slightly lower than expected revenue was largely due to exchange rate issues, meanwhile, management has also reiterated that they have lowered their 2023 earnings guidance to $4.71 to $4.73, down from $4.74 to $4.76. The lower-than-expected guidance is on the back of cyclical issues. Salesforces' stock is down over 35 percent for the year.
The CEO stated the following:
“We had another strong quarter, delivering strong top and bottom line performance. Our results demonstrate the durability of our business model and the strength of our strategy. Our Customer 360 product portfolio is the industry standard and the market leader, a leader in 12 current Gartner Magic 5. ViaVid has made considerable efforts to provide an accurate transcription Our technology is also deeply differentiated. Einstein artificial intelligence platform is now doing over 175 billion predictions every day, just incredible. “
“Our go-to-market capability is also unmatched in the industry. The diversity of the industries, regions, and lines of business we serve has driven the durability and resilience Marc talked about, and you’ve seen in our business over the past 23 years. Finally, our ecosystem is unparalleled in enterprise software. As 150,000 Trailblazers join us for Dreamforce next month, they represent a global community of developers, administrators, and ISVs 17 million strong that are driving what IDC estimates to be $1.6 trillion in new business revenues by 2026.”
What is the future of Salesforce?
CRM (customer relationship management) is expected to witness strong growth as more and more consumers come onto the market until the end of the decade. Analysts have forecasted anywhere from 12-14 percent growth, and the market to reach a figure of anywhere from $150 to $160 billion by 2030.
CRM helps businesses in a number of ways, including reducing the cost of sales, improving customer relationships, and helping businesses build sustainable relationships. Businesses are increasingly including CRM technology to improve turning their lead generation into sales. Although CRM is not one sized fit all solution, its increasingly become an important tool for businesses.
Furthermore, Salesforce continues to improve its after-sales service products as well, as it looks to improve customer engagement after a sale has been made.
The total package has helped the company become a key player in the industry with a 20% market share, and the company is increasingly looking to expand its business globally in order to continue its high rate of growth. Management has indicated it is aggressively looking to target customers in China, and the Asia-Pacific region, where it will look to address local market needs. CRM strategy in emerging markets tends to be different than in developed markets such as North America, owing to differences in sales and after-sales expectations, and cultural differences/preferences. It remains to be seen whether Salesforce can successfully navigate the future.
Taking a look at Salesforce’s valuation
Salesforce currently trades at 6x sales and has a forward price-to-earnings of around 35x. Considering that company is likely to keep growing in double-digits, provided the global economy remains intact, Salesforce is likely valued at what it should be. Investors are currently expecting a growth of around 16-18% over the next decade at current valuations. Considering that global GDP growth could be around 3%, provided that economic growth remains intact and retail growth is expected to be around 4% Salesforce is priced to ‘perfection’.
But, risks remain. Inflation is running hotter than central banks had expected, and after a decade of low-interest rates, central banks have started to aggressively increase rates, in order to catch up with rising prices. This leads to possibilities of economic slowdown, and lower customer engagement. In turn, this could lead to issues of weaker revenue, and margins contracting.