Salesforce Beat Earnings, Misses On Revenue

Salesforce topped first-quarter earnings expectations with a 44% increase in EPS of $2.44 from the year prior, however had a huge miss in revenue as it climbs to only an 11% increase for the year.

Beating earnings doesn’t have the same weight that it used to. Increasing company earnings over time was often seen as a great sign for future company growth. Beating analyst forecasts meant that the company was doing better than expected. 

This is still the case, of course, but in the current market dynamic, analysts are looking at more metrics than just earnings.

Take Salesforce, which topped first-quarter earnings expectations. A 44% increase in EPS of $2.44 from the year prior should be an amazing sign of growth; however, the rest of the reported metrics tell us a different story. 

Even with such a strong increase in earnings, Salesforce tanked 16% in Wednesday’s after-hours trading. They had a revenue miss that was well below expectations. Sales growth has also slowed despite an acquisition spree that included the likes of Slack Technologies and Mulesoft. 

Still, revenue climbed by over 11% for the year to $9.13 billion. Should Salesforce really be punished for this revenue miss?

Salesforce BIG Revenue Miss

There is no way to sugarcoat it, but the answer is yes. Revenue did grow but not by enough, and as we know, in 2024, the market is brutal. Your company needs to be at its A-game, from all aspects and metrics, in order for the market to accept it. 

Even with the company's earnings and revenue increasing, analysts believe that Salesforce has a weak growth outlook. Software stocks are struggling; in particular, software application companies have seen a weakened buying environment with tougher spending conditions and disruptions from go-to-market changes. Software, in general, is experiencing a downtrend. 

So, can this slowdown really be blamed on Salesforce if the entire industry is facing this problem? 

The Overall Software Industry

Something to consider is that it's not unusual to see some revenue softness in Q1 for software companies as they make their organizational changes within the company in order to stimulate growth through the remainder of the year. For Salesforce, this could be just a standard reshuffling that is not indicative of a larger problem that could affect multiple quarters. 

This conclusion could make any financial detective proud; however, there is one important metric that doesn’t line up with this story. 

CRPO

A key financial metric that software companies like to use is known as CRPO bookings or current remaining performance obligations. This metric refers to an aggregate measure of all the deferred revenue and order backlog. Essentially, this calculates the portion of the remaining revenue that they plan to receive in the next 12 months.

Salesforce has beaten CRPO forecasts for the previous five quarters; however, in Q1 of this year, Salesforce missed by 1.5% to 2%. CRPO only rose 10% to $26.4 billion vs analysts expectations for 11.9% growth. All of the momentum seen in Q4 of last year has since moderated as the company faces elongated deal cycles, tougher buying conditions, and high levels of budget scrutiny from buyers.

This metric paints a picture that this revenue miss and sales slowdown may not just be a reorganizational outcome but something deeper.

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