Customer relationship management software maker Salesforce (NYSE:CRM) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 11.4% year on year to $8.6 billion. The company also expects next quarter's revenue to be around $8.71 billion, in line with analysts' estimates. Turning to EPS, Salesforce made a non-GAAP profit of $2.12 per share, improving from its profit of $1.19 per share in the same quarter last year.
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Salesforce (CRM) Q2 FY2024 Highlights:
- Revenue: $8.6 billion vs analyst estimates of $8.53 billion (0.89% beat)
- EPS (non-GAAP): $2.12 vs analyst estimates of $1.88 (12.5% beat)
- Revenue Guidance for Q3 2024 is $8.71 billion at the midpoint, above analyst estimates of $8.66 billion
- The company slightly raised its revenue guidance for the full year, it stands at $34.8 billion at the midpoint
- Free Cash Flow of $628 million, down 85.2% from the previous quarter
- Gross Margin (GAAP): 75.4%, up from 72.4% in the same quarter last year
“Our transformation drove our strong second quarter results, delivering revenue of $8.6 billion and record GAAP and non-GAAP operating margins,” said Marc Benioff, Chair and CEO of Salesforce.
Launched in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, Salesforce (NYSE:CRM) is a software as a service platform that helps companies access, manage and share sales information.
Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrate data analytics with sales and marketing functions.
Sales Growth
As you can see below, Salesforce's revenue growth has been solid over the last two years, growing from $6.34 billion in Q2 FY2022 to $8.6 billion this quarter.
This quarter, Salesforce's quarterly revenue was once again up 11.4% year on year. On top of that, its revenue increased $356 million quarter on quarter, a strong improvement from the $137 million decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Salesforce is expecting revenue to grow 11.1% year on year to $8.71 billion, slowing down from the 14.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.1% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Salesforce's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.4% in Q2.
That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Salesforce's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Key Takeaways from Salesforce's Q2 Results
With a market capitalization of $206 billion, a $12.4 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Salesforce has the resources needed to pursue a high-growth business strategy.
It was good to see Salesforce beat revenue, non-GAAP operating profit, and adjusted EPS expectations this quarter. The company also slightly improved its gross margin vs. last year. Those really stood out as positives in these results. What is driving the stock up as well is the slightly increase in full year revenue guidance accompanied by a meaningful increase in profit and cash flow guidance. Zooming out, we think this was a strong quarter, showing that the company is staying on target. The stock is up 6.31% after reporting and currently trades at $228.86 per share.
So should you invest in Salesforce right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
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