Shares of Salesforce (NYSE: CRM) are down almost 7% in premarket trading Thursday despite the company reporting better-than-expected Q2 earnings per share (EPS) and revenue. However, CRM provided weak guidance for 2023, hence a move down in aftermarket hours on Wednesday.
How Did CRM Do in Q2?
Salesforce reported an adjusted EPS of $1.19 for the second quarter, topping the consensus estimates of $1.02 per share, according to Refinitiv. Net income stood at $68 million in Q2, down from $535 million in the same period last year.
Revenue came in at $7.72 billion in the three-month period ended July 31, up 22% year-over-year, and above the consensus projection of $7.69 billion.
Salesforce reported $1.83 billion in service subscription and support revenue, up 14% from the year-ago period. Sales business nabbed $1.7 billion in revenue, up nearly 15% year-over-year. The company’s Platform and Othercategory, which includes the communications platform Slack, reported $1.48 billion in revenue, up 53% year-over-year.
Going forward, Salesforce expects Q3 adjusted EPS in the range of $1.20 to $1.21, missing the consensus estimates of $1.29 per share. The company expects third-quarter revenue to be in the range of $7.82 billion to $7.83 billion, well below the analyst consensus of $8.07 billion. Salesforce said its weaker-than-expected revenue guidance comes in part due to the high impact of foreign exchange rates.
For the full fiscal 2023, Salesforce now expects adjusted EPS in the range of $4.71 to $4.73, down from the previous forecast of $4.74 to $4.76 per share, while analysts were looking for $4.75 per share.
The cloud-based software maker expects full-year revenue in the range of $30.9 billion to $31 billion, down from the previous guidance of $31.8 billion and below the consensus estimates of $31.73 billion. Salesforce said its full-year guidance involves an $800 million negative foreign exchange impact.
CEO Mark Benioff said the company has weathered weak economic cycles before.
“Sales cycles can get stretched, deals are inspected by higher levels of management and all of this we began to start to see in July,” he said. “Nearly everyone I’ve talked to is taking a more measured approach to their business. We expect these trends to continue in the near term, and we’ve reflected this in our guidance.”
However, the company’s CFO Amy Weaver said the slowdown was evident only in specific categories. Demand was weaker from small and medium-sized businesses (SMBs), especially in North America and Europe, across retail, consumer goods, and communications and media sectors.
“From a product perspective, commerce and marketing saw more pronounced decelerations, while sales and service remained strong,” Weaver said. Even with weakness in revenue, Salesforce reiterated its guidance for an adjusted operating margin of 20.4% for the 2023 fiscal year.
In its most recent quarter, Salesforce introduced fresh marketing and commerce solutions and bought Troops.ai – a startup that created a Slack chatbot to improve the customer-relationship management platform.
Salesforce, which bought Slack for $28 billion in 2021, said it plans to hike the chat offering costs for the first time since its launch in 2014. The company said it still expects $1.5 billion in Slack revenue for the full fiscal 2023.
The San Francisco, California-based company also approved its first $10 billion share repurchase plan. Benioff said the move will not keep Salesforce from making further acquisitions.
Summary
Shares of Salesforce are down nearly 30% this year, with the stock now down a further 7% on the back of the weaker-than-expected guidance. Tech stocks have had a very challenging year so far as red-hot inflation and aggressive interest rate hikes by the Fed push investors away from risk assets.
