CRM giant beats growth forecasts, guides strongly and announces more shareholder return
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It seems like Salesforce was already struggling when activist pressure and executive departures hit, but the recent layoffs only added to the company’s woes. In the face of this performance, some might wonder how long Salesforce can hold on before it falls apart completely.
There were all indications that the CRM leader was going to have a tough time with their reported quarter. However, in a surprising turn of events, they managed to defy the odds and deliver a strong performance. This seemed to send a message to their competitors that they are still one of the elite players in this industry.
The results were very positive for Salesforce, as the company reported revenues that topped expectations and guidance that came in ahead of street estimates. This strong performance bodes well for the future of the company, which continues to grow at a rapid pace.
The Street was banking on Salesforce to deliver top line growth of over 14% in its most recent quarter, but the cloud computing company delivered impressive performance in constant currency terms. The top line actually surged by three points, to $8.38 billion, outpacing analysts’ expectations by a wide margin and marking continued investor confidence in the company’s long-term prospects.
While some investors were disappointed with Salesforce’s forecasted revenue, the company has reaffirmed its commitment to continued innovation and growth. Salesforce plans to continue investing in new products and services for its customers, as well as expanding into new markets. This move demonstrates that even amid tough economic times, companies like Salesforce are still able to prosper by continuing to provide value to their customers.
Salesforce’s performance in the first quarter suggests that it is on track to beat its own growth estimates and improve profitability. Not only did the company report GAAP and non-GAAP operating margins of 3.3% and 22.5%, respectively, but it also expects GAAP operating margin of 10.8% and non-GAAP operating margin of 27.0% for its new fiscal year, which begins in July. This strong performance indicates that Salesforce is well on its way to becoming a significant player in the cloud computing market
Salesforce’s apparent vitality in 2018 has investors bullish on the company’s prospects for the future. The company delivered better-than-expected growth and forecasted stronger operating profit results for its new fiscal year, which bodes well for its longterm success.
In its most recent quarter, Salesforce reported record revenue and profits. While the company has been attacked by activist firms in the past for its high spending compared to competitors, these operating numbers could help swing some public opinion in the company’s favor. Given that Salesforce is one of the largest benefactors of cloud computing, a shift in consumer preferences towards on-demand services could have long-term benefits for CEO Marc Benioff’s firm.
It seems as if the activist hedge fund Elliott Management is seeking to exert its influence over Salesforce by electing a slate of new directors. A poorly performing company could do well to heed their warnings, as acting quickly may be key in keeping them at bay.
Investors seem to generally appreciate the company’s strategy of returning much of its cash to shareholders, but they would like to see better anticipated shareholder returns. Salesforce has typically opted for share buybacks, given its strong cash generation; however, it announced that it is increasing the size of its buyback to $20 billion in total. This move could potentially help the company accelerate future growth and improve stock performance.
Activist investing stirs up a lot of debate because it can radically change the makeup of a company’s board and management, but what is often left out of the equation are the long-term effects that these changes might have. In this case, Salesforce’s decision to increase its share buybacks could very well appease activist investors and quiet their criticism in the short term. This move will ultimately satisfy shareholders who want more regular return on their investment, but it may come at the cost of damaging relationships with some key stakeholders who are not as interested in seeing acquisitions make such a large impact on EPS growth. Nevertheless, even if these new strategies backfire in some way down the line, they likely don’t merit much more than mixed reviews from Wall Street at this point.
In the past, salesforce has been criticized for its high cost structure and slow expected growth. However, this week’s earnings report proves that the company is actually doing something right and may be able to prove its critics wrong in the long term.