Salesforce shares (NYSE:CRM) moved sharply higher on Thursday after the cloud-based software firm reported stronger-than-expected earnings and revenue for the fourth quarter and issued an upbeat forecast.
The company reported adjusted earnings per share (EPS) of $1.68, beating the consensus estimates of $1.36 per share. Revenue rose 14% year-over-year to $8.38 billion in the quarter that ended on Jan. 31, while analysts were looking for $7.99 billion, according to Refinitiv. Revenue growth was in line with the previous quarter.
Q4 2022 hedge fund letters, conferences and more
Better Than Feared Results and Guidance
Salesforce reported a quarterly loss of $98 million, or 10 cents per share, wider than the $28 million loss it posted in the same period last year. During the quarter, Salesforce co-founder and CEO Marc Benioff announced the company would trim 10% of its staff, affecting more than 7,000 people. He also said its restructuring strategy resulted in costs of $828 million during the three-month period.
Salesforce posted the highest-ever adjusted operating margin in the fourth quarter, of 29.2%. Several months ago, the company said its operating margin goal for fiscal 2026 is 26%.
"Six months ago in September at our Dreamforce Investor Day we shared with you our comprehensive transformation plan, the new day for profitable growth," Benioff said on the conference call, according to CNBC.
"But things have changed as we entered our fourth quarter. We recognized that we needed to radically accelerate the transformation plan time frame.”
The company had to “press the hyper-space button” and attain its two-year goals in this fiscal year, Benioff added. The 58-year-old also said Salesforce has disbanded its board committee on merger and acquisition deals and is now cooperating with consulting firm Bain to review its business.
As for the ongoing fiscal Q1 2024, Salesforce expects adjusted EPS in the range of $1.60 to $1.61 on a revenue of $8.16 billion to $8.18 billion. The forecast exceeded Wall Street estimates of $1.32 per share and $8.05 billion in revenue.
For the full fiscal 2024, the software maker forecasts adjusted EPS of $7.12 to $7.14, well above the analysts’ expectations of $5.84 per share. Revenue is expected to range between $34.5 billion and $34.7 billion, compared to consensus estimates of $34.03 billion. The company expects its operating margin to be 27% in fiscal 2024 and 30% in Q1 2025.
Amy Weaver, CFO of Salesforce, said the forecast assumes the company will see no improvement in the longer sales cycles, increased spending requirements, and a smaller number of deals that the company has participated in during the past three quarters. Moreover, Salesforce’s operating chief Brian Millham said the company faced shortcomings in the financial services and tech industries in the latest quarter.
Upon the earnings announcement, Salesforce also said it will expand its share repurchase program to $20 billion.
Activist Investor Involvement
Salesforce has increased its focus on reaching profitability in the recent period but that task has been more difficult to pull off as the company has been faced with an influx of activist investors such as Third Point, Starboard Value, and Elliot Management.
On Wednesday, Elliot nominated a number of directors for Salesforcce’s board, CNBC reported. The window for nominations is set to close on Mar. 14, and it remains unclear whether it’s two or three nominees, according to the report. Elliot’s nominees will likely include Jesse Cohn, who runs the activist practice at the investment management firm.
The activist investor revealed its multibillion-dollar stake in Salesforce in January, saying the ValueAct Capital CEO Mason Morfit will join the software company’s board in March. Other activist investors including Dan Loeb’s Third Point also built a stake in the company, earlier reports showed.
Late on Wednesday, Elliot issued a statement applauding Salesforce’s stronger-than-expected earnings results, but the activist investor said it will not back down from its campaign for changes at the company.
“Elliott has been in close, substantive dialogue with Salesforce leading up to today's earnings statement. Salesforce's set of announcements today represents progress towards regaining investor trust. “
Elliot added that Salesforce’s recent progress and movement in the right direction represent key reasons why the firm is still among the company’s biggest investors, though “much work remains,” the activist investor stated.
The investment manager claims Salesforce is in need of “a sustainable leadership plan and a board that demonstrates it can provide accountability through proper oversight.” For that reason, the company’s leadership must fulfill its promises, Elliot added.
Salesforce saw a negative impact to its business fundamentals with high-profile departures and a notable slowdown in revenue growth in recent times. The firm also faced backlash for acquiring companies such as Slack and Tableau at elevated multiples.
The company’s shares lost around 48% in 2022, compared to the S&P 500 decline of 19%.
Summary
While encouraged by strong quarterly results and better efficiency, activist investor Elliott Management said it plans to continue pushing for changes at Salesforce. The software firm previously delivered better-than-expected results and guidance to send its shares higher on Thursday.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.
