Please ensure Javascript is enabled for purposes of website accessibility Drops 2 Big Surprises Along With Its Earnings

By Danny Vena – Feb 27, 2020 at 7:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A billion-dollar acquisition and an unexpected management shakeup headlined the company's fourth-quarter earnings.

The quarterly financial report has become something of a non-event for (CRM 0.14%). The company has a long history of posting record revenue quarter after quarter, while at the same time crushing management's guidance and analysts' expectations.

While this quarter was no different in that regard, there were a couple of dramatic developments that gave the usual humdrum event a bit more drama.

As part of its fourth-quarter earnings release on Tuesday, Salesforce announced another sizable acquisition while also revealing that its co-CEO, Keith Block, was unexpectedly stepping down.

Salesforce co-CEO Keith Block giving keynote addressing a crowd at the company's TrailheaDX event in 2018.

Salesforce co-CEO Keith Block is stepping down. Image source:

The fourth-quarter results

As it has done time and time again, Salesforce reported better-than-expected results. The customer relationship management specialist reported fourth-quarter revenue of $4.85 billion, up 35% year over year and 34% in constant currency terms. This soared past both the high end of management's forecasted range and analysts' consensus estimates, which topped out at $4.753 billion and $4.76 billion, respectively. 

Bottom-line growth was also robust. Salesforce delivered non-GAAP earnings per share (EPS) of $0.66, significantly better than the $0.55 expected by Wall Street.

Several other metrics show the depth of Salesforce's continued growth. The company's remaining performance obligation (RPO) -- which is the amount of future revenue under contract that hasn't yet been recognized -- rose to $30.8 billion, up 20% year over year. The portion of RPO that will be realized over the coming 12 months climbed to $15 billion, up 26% year over year and 27% in constant currency.

The company continues to generate wads of cash, with fourth-quarter operating cash flow of $1.63 billion, up 23% compared to the prior-year quarter.

Co-CEO Keith Block is stepping down

Salesforce stock initially declined after word that co-CEO Keith Block was stepping down from the role (though he would remain as an advisor), leaving Marc Benioff as the sole CEO of the company.

Of the transition, Block said, "It's been my greatest honor to lead the team with Marc that has more than quadrupled Salesforce from $4 billion of revenue when I joined in 2013 to over $17 billion last year. After a fantastic run, I am ready for my next chapter and will stay close to the company as an advisor."

Salesforce also announced that Gavin Patterson, who most recently headed the company's Europe, the Middle East, and Africa (EMEA) operations, would become president and CEO of Salesforce International, placing him in charge of the company's largest international markets.

(Another) big acquisition

The company also announced that it entered into a definitive agreement to acquire Vlocity, at a price tag of $1.33 billion. The company builds a number of industry-specific applications on top of the Salesforce platform -- communications, media and entertainment, insurance and financial services, health, energy and utilities, and government and nonprofits.

The company's venture capital arm -- Salesforce Ventures -- was already an investor in Vlocity, so it appears the writing was on the wall.

This is just the latest in a long line of high-profile acquisitions for Salesforce in recent years. In 2019 alone, the company acquired Tableau Software for $15.7 billion, ClickSoftware for $1.35 billion, and numerous smaller acquisitions including MapAnything, Bonobo AI, and Griddable. 

More to come as 2021 guidance is raised

Following a time-honored practice for Salesforce, after beating its forecast, management raised its guidance for fiscal 2021, as part of the "beat and raise." The software-as-a-service giant is now guiding for yearly revenue in a range of $21 billion to $21.1 billion.

The company also raised its first-quarter forecast to a range of $4.875 billion to $4.885 billion, which would represent year-over-year growth of between 30% and 31%. The company is also expecting to deliver adjusted EPS of between $0.70 and $0.71.

It's worth noting that revenue guidance came in higher than Wall Street was expecting, as analysts' consensus estimates for the first quarter called for revenue of $4.84 billion, while its profit guidance was in line with expectations. 

This was another textbook quarter for Salesforce. Investors should just put this stock away and check back next quarter. Move along, nothing to see here.

Danny Vena has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Salesforce, Inc. Stock Quote
Salesforce, Inc.
$149.10 (0.14%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.