Salesforce (CRM +4.13%) stock jumped nearly 10% on Wednesday afternoon after the customer relationship management (CRM) software company announced strong financial results in its latest quarterly report. The move came as a relief to investors who had watched the stock lose half its value since November 2021.
For long-term investors, the latest news could be even more important. Ever since reaching its pinnacle of success in becoming one of the 30 elite stocks in the Dow Jones Industrial Average (^DJI 0.31%), Salesforce has seemed to struggle for direction. Now, though, Salesforce has regained its vision for the future, and investors have high hopes that the stock will regain its former upward momentum.
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Bad timing for the Dow
When Salesforce received an invitation to join the Dow in August 2020, it wasn't hard to understand why. The CRM software pioneer had seen its stock soar 6,200% since its 2004 IPO, and the cloud computing revolution led even more customers to embrace digital transformation efforts that brought in more business for Salesforce.
Unfortunately, Salesforce has been largely a disappointment for Dow Jones investors. Since joining the average, the CRM specialist has seen substantial ups and downs, and it's down more than 40% during a period when the Dow was up nearly 20%.
How Salesforce is bouncing back
Salesforce's latest news isn't wiping out those share-price losses, but it is setting the stage for the business to keep up its winning ways. Revenue rose 24% year over year to $7.41 billion in the first quarter of its 2023 fiscal year. Its remaining performance obligations jumped 20% to $42 billion, representing between five and six quarters' worth of future business in the Salesforce pipeline. Operating cash flow climbed to $3.68 billion, showing the cash-generating power of the CRM software-as-a-service business model.
More importantly, though, Salesforce continues to expect its market to expand at a healthy pace. With the Salesforce Customer 360 platform going well beyond its CRM roots to provide a host of valuable services, customers are turning to the software provider not just for sales- and service-related products but also for marketing, commerce, productivity platform, and data analytics. Those markets add up to a total addressable market that Salesforce estimates will grow to $284 billion by 2026.
Already, Salesforce is confident in its ability to tap into this expanding market. Co-CEO Bret Taylor pointed to the increasing strategic value and relevance that Customer 360 has for all of its customers.
NYSE: CRM
Key Data Points
The key to a Salesforce long-term win
One area where Salesforce still needs to prove its success to investors is in its bottom line. Adjusted earnings were down year-over-year in the first quarter. Salesforce's latest projections for full-year fiscal 2023 earnings of $4.74 to $4.76 per share would be a slight drop from the corresponding figure from fiscal 2022.
However, Salesforce is focusing its efforts on margin expansion to stoke bottom-line growth. CFO Amy Weaver noted that Salesforce's scope has allowed it to boost sales while staying disciplined in its decision making, and that led to the company upgrading its guidance on operating margins for fiscal 2023 to 20.4%.
Salesforce has demonstrated that its software platform is popular, and clients are clamoring to take advantage of its features. Now, if Salesforce can use its pricing power to keep margins healthy and deliver similar growth in its earnings, then it will prove once and for all that it fully deserves its place among the elite 30 stocks of the Dow Jones Industrials -- and will hopefully start delivering the share-price returns that earned it that invitation to the join the Dow in the first place.
