Salesforce stock drops despite strong earnings report

Benioff also spent a significant amount of time on the call taking the company’s AI software bids, but there’s no clarity on how these developments will affect growth — or when.

Shares of Salesforce (stock ticker: CRM) fell 6.6% in late trading after the earnings report and conference call.

Salesforce CFO Amy Weaver said in an interview with Barron It was a “strong quarter” that featured a sharp improvement in operating margins. It notes that the non-GAAP operating margin of 27.6% was 2 points ahead of the consensus, and 10 percentage points better than the year-ago quarter.

But Weaver also said there are some reasons why it takes a conservative approach to guiding revenue for the full year. In particular, I noted that the company continues to face difficult macro conditions. The April quarter in this regard was similar to the January quarter, she said, except that Salesforce saw some additional stress on professional services revenue, as clients turn to projects that can generate returns more quickly.

Weaver added that the company’s Mulesoft unit was a “leading” performer in the April quarter, but with weaker results in commerce, marketing and Slack. This finding isn’t surprising, she says, as customers spend less in areas where they have more discretion to cut costs.

For the quarter, Salesforce reported revenue of $8.25 billion, up 11% from a year ago, or 13% in constant currency. That’s just above the top of the company’s guidance range of $8.18 billion and the Wall Street consensus of $8.14 billion.

On an adjusted basis, the company earned $1.69 a share, 8 cents better than the top of the guidance range and 10 cents better than the Street consensus. Under generally accepted accounting rules, the company earned 20 cents a share for the quarter. The remaining current performance obligations were $24.1 billion, an increase of 12%.

For the July quarter, Salesforce expects revenue of $8.51 billion to $8.53 billion, up 10%, and matching Wall Street’s forecast of $8.49 billion. The company reiterated its full-year revenue guidance from $34.5 billion to $34.7 billion but raised its forecast for operating margins for the full year.

Weaver notes that the company repurchased $2.1 billion in shares this quarter, bringing the total since it began the buyback program last August to $6 billion.

Salesforce had a huge quarter in January, which saw better-than-expected results and higher guidance.

Salesforce, a leader in cloud-based enterprise software, has unveiled an expanded stock repurchase program. It also created a board-level “Business Transformation Committee”, after five activist investors acquired stakes in the company. The board then dissolved a committee focused on mergers and acquisitions. Add in a few recent announcements about the company’s plans for artificial intelligence, and the stage is set for a big move.

Since that March 1 earnings report, Salesforce stock is up 32%.

Write to Eric J. Savitz at [email protected]