The past few months have been tough on technology stocks, with the S&P 500 firmly entrenched in correction territory while the Nasdaq Composite has slipped into a bear market, down more than 25% from its November peak.
Not all tech stocks are created equal, however. Salesforce (CRM -0.18%) smashed expectations with its most recent financial report, sending its share price is soaring more than 10% (as of this writing) in its wake. To put that in context, that was the biggest daily stock move in nearly two years for the customer relationship management (CRM) specialist. Let's take look at the results and why they have investors so bullish.
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Slowdown? Not here...
For its fiscal 2023 first quarter (which ended April 30), Salesforce reported revenue of $7.41 billion, up 24% year over year. What made this even more impressive was that the results came despite strong foreign currency headwinds -- revenue increased by 26% on a constant-currency basis. The level of profit also surprised, with adjusted earnings per share of $0.98.
To give those numbers context, analysts' consensus estimates were calling for revenue of $7.4 billion and adjusted earnings per share of $0.95.
Salesforce generated robust year-over-year growth from each of its major segments. Sales and service revenue grew by 18% and 17%, respectively, while its platform revenue surged by a stunning 55%. At the same time, revenue from its marketing and commerce segment increased by 22%, and its data segment sales grew by 15%.
International growth continued to outpace gains closer to home: Revenue in the Americas climbed by 21%, while growth in the Europe, Middle East, and Africa (EMEA) region jumped 33%, and sales in the Asia Pacific (APAC) region climbed 24%.
Other metrics in the report further fueled investors' enthusiasm. Salesforce reported a remaining performance obligation (RPO) of $42 billion, up 20% year over year. The current portion of its RPO was $21.5 billion, up 21%, or 24% in constant currency. RPO -- particularly the current portion -- is a closely watched metric among investors, as it represents revenue under contract that has yet to be included in its financial results, providing insight into the company's prospects over the coming year.
Even as other technology companies brace for slowing growth, Salesforce Chairman and co-CEO Marc Benioff seemed surprisingly upbeat. "So far, we're just not seeing any material impact from the broader economic world," Benioff said during the earnings conference call. "Our demand environment is very strong, and if you look over the last 23 years, Salesforce has proven to be incredibly resilient based on this incredible business model."
Consistent growth, with a focus on profits
Its strong revenue growth and the pipeline of upcoming sales notwithstanding, Salesforce trimmed the top end of its revenue forecast. The company is now guiding for fiscal 2023 revenue of as much as $31.8 billion, up 20%, down slightly from its previous expectation for 21% growth.
Investors didn't seem to mind, however, as management vowed to squeeze more profits out of each sale, raising its operating margin forecast to roughly 3.8%, up from its previous guidance of 3.6%. This helped push Salesforce's profit goals higher for the fiscal year. It now expects earnings per share of $4.75 at the midpoint of its guidance, up by about $0.12 per share from its previous estimates.
Salesforce was among the original software-as-a-service (SaaS) providers, and has been able to maintain a strong rhythm of year-over-year revenue growth above 20% for each and every fiscal year going back more than two decades -- even during periods of recession. This is a remarkable achievement for a company of any size, but it's particularly notable given Salesforce's market cap of nearly $174 billion. The company has managed this impressive feat by continuing to innovate and expanding its platform and offerings -- most recently with its acquisition of Slack in mid-2021. As a result, Salesforce remains the industry leader in CRM, a space it helped to create.
From a valuation standpoint, Salesforce has never been cheap, but its current price-to-sales ratio is roughly 6. That metric has only been this low two other times in the company's storied history.
The company's solid and consistent revenue growth, robust pipeline of upcoming sales, and historically low valuation suggest that Salesforce stock is a strong buy.
