- Salesforce is forecast to deliver slowest revenue growth on record in the first quarter
- But key focus is on margins amid its renewed focus on profitability
- Pressure from activist investors is easing following well-received results in the last quarter
- Goldman Sachs believes full year guidance could be conservative
- Can Salesforce get investors excited about catalysts coming from artificial intelligence?
- Salesforce is currently trading at 14-month highs and has comfortably been the best performer in the Dow Jones Industrial Average in 2023
When will Salesforce release Q1 earnings?
Salesforce will release first quarter earnings after US markets close on Wednesday May 31. A conference call is scheduled on the same day at 1400 PT (1700 ET).
Salesforce Q1 earnings consensus
Salesforce is forecast to report a 10.3% year-on-year rise in first quarter revenue to $8.175 billion, while adjusted EPS is expected to rise 64% to $1.61.
Salesforce Q1 earnings preview
Salesforce is expected to report its sixth consecutive quarter of slower year-on-year growth in the first three months of 2023 as businesses continue to become more stringent with their spending amid the uncertain economic climate. In fact, Salesforce is expected to deliver the slowest topline expansion on record since it went public way back in 2004! However, some believe we will see greater deal stability this quarter.
‘While the macro is not roses and rainbows and [Salesforce] is still battling through various headwinds, overall we saw stronger cross-sell activity this quarter and particular strength out of the Tableau front with a number of larger, more transformational suite wide deals inked during the quarter,’ said Wedbush analyst Dan Ives, who added that the integration of messaging platform Slack into its other software could fuel ‘major collaboration deals’.
Still, the key focus will be on margins and how profitability is faring compared to its goal to deliver an adjusted operating margin of 27% over the full year, with analysts pencilling-in 25.5% in the first quarter and anticipating this will continue to improve sequentially for the remainder of the year. Keeping on that path of better profitability will be key to the investment case.
The renewed focus on profitability, underpinned by job cuts and a restructuring plan that has appeased activist investors that had been pushing for change before becoming convinced in the last set of results that it is heading in the right direction, should lead to impressive growth at the bottom-line.
Salesforce shares up over 28% since the start of March and are currently at their highest level in 14 months, with investors growing confident after it beat expectations in the last quarter, posted a bullish full year outlook and topped-up its share buyback programme.
The main task now is delivering its guidance. As a reminder, Salesforce is aiming to deliver annual revenue of $34.5 billion to $34.7 billion, which would be up around 10% from the year before. Goldman Sachs recently said it sees ‘modest upside’ potential to its 10% revenue growth target this year and believes the outlook may be conservative. Salesforce has also promised to deliver double-digit growth in operating cashflow, by around 15% to 16%, from the record sum delivered in the last financial year.
We could see artificial intelligence provide a boost, with investors keen to find out how its Einstein GPT, which it claims is the ‘world’s first generative AI for CRM’ and is being powered by Chat GPT creator Open AI, has performed since being launched in early March. Salesforce enjoys a massive installed base, giving it a huge pool of customers to push its new AI tools on.
Where next for CRM stock?
Salesforce shares continue to rip higher, with the stock trading up 2% in premarket trade and poised to open at fresh 14-month highs when markets open today.
The stock is now on course to test the $222 ceiling that held firm between February and April 2022. A break above here could lead to a significantly larger jump toward $246, representing the resistance we saw in mid-2021 and the support we saw in late 2021 and early 2022.
Notably, brokers believe that may be a stretch considering the average target price set by the 49 brokers that cover the stock sits at $228, implying there is limited upside potential from here.
We can see the RSI is on the cusp of re-entering overbought territory, suggesting it may find it more difficult to find higher ground. Plus, there has been a bearish divergence considering the indicator has fallen since the start of February while the share price has soared higher. We could see the stock slip back below $200 if it comes under renewed pressure, with $193 coming into play after.
Dow forecast: Where next for the index?
Traders should also keep an eye on the Dow Jones Industrial Average considering Salesforce has been the best performer within the index since the start of 2023 and makes up over 4% of the index. Plus, Salesforce is regarded as a major bellwether for the wider US economy, meaning it could have an impact on other stocks and indices.
The index tested the 200-day moving average last week before rebounding on Friday. A slip below the moving average, currently at 32,774, could see it fall toward the intraday low we saw last week of 32,586. Any drop below here risks seeing the index drop back toward the closing-low of 2023 at 31,760.
As for the upside potential, the immediate target is to recapture 33,582, marking the peak we saw in March. It can then look to climb upwards to the falling trendline that can be traced back to March 2022.
Take advantage of extended hours trading
Salesforce will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.
With this in mind, you can take advantage of our service that allows you to trade Salesforce and other tech stocks using our extended hours offering.
While trading before and after hours creates opportunities for traders, it also creates risk, particularly due to the lower liquidity levels. Find out more about Extended Hours Trading.