On Wednesday, Salesforce.com Inc (NYSE:CRM) maintained its Outperform rating according to RBC Capital, despite a challenging quarter that saw the company's current remaining performance obligations (cRPO) growth fall short of expectations. Salesforce's cRPO growth was 10% in constant currency, missing the forecasted 12%. This shortfall led to a significant 17% drop in the stock's after-hours trading.
The company's revenue was slightly below the consensus, with a 0.2% miss compared to the four-quarter average beat of 0.6%. Operating margins also disappointed, missing the mark by 20 basis points, a stark contrast to the average beat of approximately 140 basis points from the previous four quarters.
The future outlook provided by Salesforce did little to reassure investors, with second-quarter fiscal year 2025 cRPO growth projected at 9% year-over-year or 10% in constant currency, which is below the estimated 11% consensus.
For the full fiscal year 2025, Salesforce has adjusted its subscription growth forecast to around 10% in constant currency, a slight decrease from the previous "10%+" expectation. The guidance also suggests a potential negative sequential revenue growth when adjusted for constant currency, unless it is offset by a substantial decrease in services revenue.
Despite these concerns, Salesforce reiterated its full-year guidance for total revenue, operating margins, and operating cash flow growth, while slightly increasing its earnings per share (EPS) estimate.
RBC Capital's price target for Salesforce remains at $350.00, as the firm looks beyond the immediate quarterly results. The company's stock performance and guidance indicate a cautious approach to growth amid a challenging economic environment. Salesforce's commitment to maintaining its full-year targets reflects confidence in its long-term strategy and ability to adapt to market conditions.
InvestingPro Insights
As Salesforce.com Inc (NYSE:CRM) grapples with its recent cRPO growth and operating margin challenges, InvestingPro data and insights offer a broader perspective on the company's financial health and market position. With a substantial market capitalization of $263.94 billion, Salesforce is a heavyweight in the software industry. Its P/E ratio, while lofty at 63.87, reflects the high earnings multiple at which the stock is trading, which is further corroborated by an adjusted P/E ratio of 50.07 for the last twelve months as of Q4 2023.
Despite the recent hiccup in growth, Salesforce's revenue has grown by 11.18% over the last twelve months as of Q4 2023, signaling resilience in its core business. Moreover, the company's gross profit margin stands at an impressive 75.5%, highlighting its ability to maintain profitability. An InvestingPro Tip worth noting is Salesforce's perfect Piotroski Score of 9, indicating strong financial health. Moreover, the company is praised for its status as a prominent player in the software industry and its capacity to cover interest payments with existing cash flows.
Investors seeking more comprehensive analysis and additional InvestingPro Tips, of which there are 11 more available for Salesforce, can find them at Investing.com/pro/CRM. For those interested, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights into Salesforce's performance and valuation metrics.
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