Customer relationship management software maker Salesforce (NYSE:CRM) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 8.3% year on year to $9.44 billion. On the other hand, next quarter’s revenue guidance of $10 billion was less impressive, coming in 0.5% below analysts’ estimates. Its non-GAAP profit of $2.41 per share was 1.5% below analysts’ consensus estimates.
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Salesforce (CRM) Q3 CY2024 Highlights:
- Revenue: $9.44 billion vs analyst estimates of $9.35 billion (8.3% year-on-year growth, 1% beat)
- Adjusted EPS: $2.41 vs analyst expectations of $2.45 (1.5% miss)
- Adjusted Operating Income: $3.12 billion vs analyst estimates of $3.02 billion (33.1% margin, 3.5% beat)
- Revenue Guidance for Q4 CY2024 is $10 billion at the midpoint, below analyst estimates of $10.05 billion
- Management lowered its full-year Adjusted EPS guidance to $10.00 at the midpoint, a 0.6% decrease
- Operating Margin: 20%, up from 17.2% in the same quarter last year
- Free Cash Flow Margin: 18.8%, up from 8.1% in the previous quarter
- Billings: $7.68 billion at quarter end, up 9% year on year
- Market Capitalization: $316.4 billion
"We delivered another quarter of exceptional financial performance across revenue, margin, cash flow, and cRPO,” said Marc Benioff, Chair and CEO, Salesforce.
Company Overview
Launched in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, Salesforce (NYSE:CRM) is a software-as-a-service platform that helps companies access, manage, and share sales information.
Sales Software
Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Salesforce grew its sales at a 14.2% compounded annual growth rate. Although this growth is solid on an absolute basis, it fell short of our benchmark for the software sector.
This quarter, Salesforce reported year-on-year revenue growth of 8.3%, and its $9.44 billion of revenue exceeded Wall Street’s estimates by 1%. Company management is currently guiding for a 7.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 8.4% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Salesforce’s billings came in at $7.68 billion in Q3, and over the last four quarters, its growth was underwhelming as it averaged 7.6% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Salesforce is very efficient at acquiring new customers, and its CAC payback period checked in at 26.1 months this quarter. The company’s performance gives it the freedom to invest its resources into new product initiatives while maintaining optionality.
Key Takeaways from Salesforce’s Q3 Results
It was good to see Salesforce narrowly top analysts’ revenue expectations this quarter. We were also glad its adjusted operating income beat. On the other hand, its revenue and EPS guidance for next quarter fell short, making it a weaker quarter. However, the market seemed to dismiss the softer outlook, and the stock traded up 3.4% to $343 immediately following the results.
So do we think Salesforce is an attractive buy at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
