Marc Benioff, co-founder and CEO of Salesforce, speaks at a luncheon at the Washington Economic Club in Washington, DC on October 18, 2019.
Nikolai Kamm | AFP | Getty Images
Sales department Shares rose 12% on Thursday, heading for their biggest one-day gain since August 2020, after the cloud software provider posted earnings and guidance that beat analysts’ estimates.
The results show that the company, led by co-founder Marc Benioff, is making concessions to activist investors who have taken stakes in the business and have recently raised concerns about the company’s revenue and earnings.
After the close of regulatory trading on Wednesday, Salesforce reported adjusted fourth-quarter earnings of $1.68 per share, 23% above the consensus among analysts polled by Refinitiv. The profit forecast for fiscal 2024 was 22% higher than expected. CFO Amy Weaver told analysts on a conference call that Salesforce sees an adjusted operating margin of 27% for fiscal 2024, which means the company is two years ahead of schedule with improved profitability.
Alongside its earnings report, Salesforce said it was working with Bain on a business review, and the company announced the elimination of its board of directors’ mergers and acquisitions committee. That drew praise from prominent activist Elliott Management, which announced a stake in the company in January.
Activists are mounting pressure on Benioff to boost margins as revenue growth slows and the company expects to take a hit from expensive acquisitions like Tableau and Slack.
“These moves are consistent with our guidance and we believe they will help restore Salesforce’s value,” Elliott’s Jesse Kohn and Jason Heinrich said.
Salesforce also beat fourth-quarter revenue, reporting 14% year-over-year growth to $8.38 billion, beating the average analyst estimate of $7.99 billion, according to Refinitiv.
“Wow, what an amazing end to the financial year,” Kash Rangan, an analyst at Goldman Sachs, said Wednesday before asking his question. “Congratulations to the team. Much, much, much, much better than expected. Brighter days ahead.”
Rangan, who recommends buying the stock, raised its 12-month price target for the second time in a week following the report. More than two dozen other analysts also raised their targets. The new average price target of $213.02 is about 15% above Thursday’s share price.
Evercore’s Kirk Mattern, one of the analysts who raised his target, wrote that “there’s always been a lot of margin-driven opportunity for CRM, but until now it’s been a trickle, not a feature movement.” Materne has a buy rating on the stock.
Needham analysts led by Scott Berg upgraded the stock to buy from hold.
“Six years on the side is a long time in our universe, but we’re here upgrading CRM to Buy as we believe our FY24 earnings guidance better aligns our cost structure with our medium-term growth outlook,” they wrote.
After falling 48% last year along with a drop in the cloud software sector, Salesforce is now up 41% in 2023 and trading at its highest since August.
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