Salesforce's (NYSE:CRM) stock fell 6% during after-hours trading on Nov. 30 after the cloud services company posted its third-quarter numbers. Its revenue rose 27% year-over-year to $6.9 billion, which crushed estimates by $60 million. Its adjusted net income declined 27% to $1.3 billion, or $1.27 per share, yet it still beat expectations by $0.35.

Those headline numbers look decent, but Salesforce's guidance was a bit bumpy. Let's review Salesforce's quarter, its outlook, and whether or not its post-earnings dip represents a good buying opportunity.

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Accelerating revenue growth

In the first nine months of fiscal 2022, Salesforce generated 25% of its subscription and services revenue from its sales platform, 27% from its service segment, 18% from its platform and other segment (which houses its app development platform Lightning and the enterprise communication platform Slack), and 16% from its marketing and commerce segment. The remaining 15% came from its new data segment, which was recently separated from its platform and other business. This segment houses its analytics platform Tableau and the integration software provider Mulesoft.

All five segments generated strong double-digit sales growth during the third quarter, and its total revenue growth accelerated significantly:

Revenue Growth (YOY)

FY 2021

Q1 2022

Q2 2022

Q3 2022

Sales

13%

11%

15%

17%

Service

20%

20%

23%

20%

Platform & Other

40%

28%

24%

51%

Data

75%

43%

31%

20%

Marketing & Commerce

25%

25%

28%

25%

Total

24%

23%

23%

27%

Source: Salesforce. YOY = Year-over-year.

For the fourth quarter, Salesforce expects its revenue to rise 24.1%-24.2%. That narrowly missed analysts' expectations for 24.4% growth. For the full year, Salesforce expects its revenue to rise 23.9%. That's slightly higher than the midpoint of its investor day forecast for 23.5%-24% growth and exceeds analysts' expectations for 23.7% growth. However, Salesforce's forecast for 21%-22% revenue growth in the first quarter of fiscal 2023 slightly missed expectations for 23% growth.

Salesforce's mixed revenue forecasts for the fourth and first quarters seemingly triggered its post-earnings sell-off. But its long-term outlook still looks bright -- it restated its goal of nearly doubling its annual revenue to $50 billion by fiscal 2026. That forecast implies Salesforce's annual revenue will continue to increase at a compound annual growth rate (CAGR) of 17.3% between fiscal 2022 and 2026.

But what about its margins and earnings?

Salesforce's adjusted operating margin declined 60 basis points sequentially and stayed flat year-over-year at 19.8%. That pressure was mainly caused by its acquisition of Slack for $27.7 billion in July, the expansion of its workforce, and other investments across its ecosystem.

Salesforce's 27% year-over-year decline in its adjusted earnings per share (EPS) in the third quarter was mainly caused by accounting changes related to its strategic investments. If we exclude those investments from both periods, its adjusted EPS would have actually risen nearly 13%.

The company expects its adjusted earnings to decline 11%-12% year over year in the fourth quarter (after excluding the accounting changes) but to still increase 51% for the full year on the same basis. However, analysts expected Salesforce's adjusted EPS to stay flat year-over-year on that basis in the fourth quarter. Salesforce attributed that softer-than-expected EPS guidance to its acquisition of Slack and other investments.

On the bright side, Salesforce raised its full-year adjusted operating margin guidance from 18.5% to 18.6%, up from 17.7% in fiscal 2021 and 16.8% in fiscal 2020. It also reiterated its investor day target for expanding its adjusted operating margin to 20% by fiscal 2023.

Near-term choppiness, long-term strengths

Salesforce's recent forecasts were mixed, but its commitment to its fiscal 2026 targets indicates that it remains a solid secular growth stock. Salesforce's customer relationship management (CRM) subscriptions are sticky, and it continues to cross-sell additional marketing, e-commerce, app development, communication, and analytics services to its locked-in customers. It's the largest cloud-based CRM provider by a mile, its pricing power insulates it from inflation, and it's performed well during previous recessions.

The company's stock also looks reasonably valued at 65 times forward earnings and nine times next year's sales. By comparison, its smaller life science CRM peer Veeva Systems (NYSE:VEEV) trades at 72 times forward earnings and 20 times next year's sales -- even though its growth rates are comparable to Salesforce's.

Salesforce's strengths easily outweigh its weaknesses. Therefore, I believe it's still a solid investment for investors who can look past the short-term noise related to its acquisitions and focus on its long-term strengths.

 
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.