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Salesforce Boosts Its Outlook Once Again

By Nicholas Rossolillo - Sep 2, 2018 at 3:18PM

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The cloud-based software platform’s growth is accelerating.

Shares of Salesforce.com ( CRM 3.71% ) were down slightly after the company reported another guidance-topping performance in the second quarter of its 2019 fiscal year. Even though the numbers were great, investors took a breather after the 50% run-up on the stock so far this year. This type of action is par for the course at Salesforce, though, and the company's prospects look stronger than ever.

First, the numbers...

Metric Q2 2019 Q2 2018 Year-Over-Year Change

Revenue

$3.28 billion

$2.58 billion

27%

Gross profit

$2.43 billion

$1.91 billion

27%

Operating profit

$115 million

$84 million

37%

Adjusted earnings per share

$0.71

$0.36

97%

The second quarter of Salesforce's fiscal year 2019 ended July 31, 2018. Data source: Salesforce quarterly earnings.

As with all Salesforce quarterly reports, the top line was the most anticipated metric ahead of this report. Management once again didn't disappoint. In what has become the company's modus operandi, revenue topped guidance given a few months prior, and full-year revenue expectations were increased. The previous full-year sales estimate of $13.075 billion to $13.125 billion was raised to $13.125 billion to $13.175 billion.

Profits aren't of primary concern for Salesforce at the moment; it's all about expanding total revenue as extra cash from operations is piled back into the business. However, for what it's worth, profitability also got a big bump in the quarter. The operating cash flow estimate for the full year was bumped up to 15% to 16% year-over-year growth compared with previous expectations of 14% to 15%.

A man in a suit holding a tablet. An illustrated brain representing artificial intelligence hovers above the screen.

Image source: Getty Images.

Unstoppable momentum?

Salesforce has been on a tear in 2018 with a series of acquisitions -- including the $6.5 billion deal to acquire integration software provider MuleSoft -- and the new businesses are resulting in accelerating growth. Salesforce's top-line pace has never dipped below 20%, and that rate doesn't look like it will be slowing down anytime soon. "Remaining performance obligations," revenue under contract that have not yet been recognized, increased 36% year over year to $21 billion.

New services are being added all the time, and management reports that MuleSoft is already off to a fast start. As the company has done with other acquisitions over the years, new product is quickly incorporated into sales conversations with new and existing customers, and MuleSoft is apparently already a central conversation piece with every prospective client. Salesforce has moved beyond the customer relationship management software it's best known for, and is now at the heart of the general digital transformation that is underway. Co-CEO Marc Benioff had this to say:

Our drive to $23 billion in revenue in fiscal year '22 and beyond is being driven by a technological revolution that is fundamentally transforming our society, the fourth industrial revolution. In terms of its size, depth, capability, and speed, this revolution is altering the human experience in ways we've never experienced before. Our customers are going through an amazing digital transformation... and as every company transforms their relationships with their customers using amazing new technologies from artificial intelligence to the cloud itself, they're fundamentally changing how they sell and how they service, how they market, and how they innovate. 

All of those new services are now firmly in the driver's seat. While the sales and service cloud segments grew 13% and 27%, respectively, the smaller platform and marketing and commerce clouds climbed 54% and 37% from a year ago. With the company's bread and butter still expanding at a healthy rate and new software having no problem winning new customers, Salesforce stock looks better than ever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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