Salesforce’s (CRM) key product is the Customer 360 platform, an artificial intelligence (AI)-powered CRM platform that helps companies sell, service, market, and conduct business. In addition, the company also offers cloud-based solutions.
I am neutral about the stock. (See Salesforce stock charts on TipRanks)
Earlier this week, Salesforce reported strong Q2 FY22 results. The company posted revenues of $6.34 billion, up 23% year-over-year, surpassing Street estimates of $6.24 billion. Adjusted earnings came in at $1.48 per share, topping analysts’ estimates of $0.92 per share.
In Q2, the company’s remaining performance obligation (RPO) and current RPO stood at $36.2 billion, and $18.7 billion, respectively. The current RPO indicates all future contractual revenue that is expected to be recognized as revenue over the next year.
Acquisition of Slack Proving Beneficial
On July 21, the company completed its acquisition of business communications platform Slack. Monness analyst Brian J. White is of the opinion that Slack will provide the company “with incremental financial flexibility over the next 12-18 months.”
The analyst was upbeat about the stock following the Q2 results, reiterating a Buy rating, and raising his price target from $290 to $300 per share; implying 12% upside.
Salesforce’s management stated on its earnings call that in Q2, “Slack’s revenue grew 39% year-over-year on a stand-alone basis, which excludes any impact of purchase accounting. Slack also saw strong performance in customer acquisition, especially in the enterprise. The number of paid customers spending greater than $100,000 annually accelerated during the quarter, up 41%.”
CRM announced the acquisition of Slack for $27.7 billion in December 2020.
CRM’s Acquisition Strategy Paying Dividends
Salesforce has pursued a strategy of adding new capabilities to its Customer 360 platform through acquisitions, including the acquisition of Vlocity for $1.33 billion in July last year, and Tableau for $15.7 billion in August 2019.
Tableau, an analytical service offering, was a part of nine of Salesforce’s top 10 deals in the second quarter, Salesforce’s management said on its earnings call.
Amy Weaver, Salesforce’s CFO noted, “This is an incredible accomplishment and evidence of how strategic these acquisitions have become for our customers.”
Forecast for Q3, FY22
The company anticipates revenues for Q3 to vary from $6.78 billion to $6.79 billion. Furthermore, EPS is expected to come in between $0.91 to $0.92 in the same period.
Salesforce also anticipates revenues for the full Fiscal Year 2022 to be in the range of $26.2 billion to $26.3 billion, while EPS is expected to vary from $4.36 to $4.38.
Wall Street’s Take
Turning to the rest of the Street, consensus is that Salesforce a Strong Buy, based on 30 Buys and six Holds. The average CRM price target of $303.62 implies an approximately 13.9% upside potential from current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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