Salesforce shares fell post-earnings despite its revenue beat, but its guidance wasn’t enough to ‘wow’ Wall Street — is it a buy on the dip?
Dec. 1, 2021
Salesforce (NYSE: CRM) fell victim to the “No Beat? No good!” theme that’s seen many stocks slump after posting earnings in Q3 2021. Year-to-date (YTD) though, Salesforce has produced a 30% gain so far, which has outperformed the S&P 500.
What does Salesforce do?
Salesforce is a customer relationship management platform that helps businesses small and large to scale their efforts in sales, customer service, marketing, and cloud computing. It also owns the work communications platform Slack, which it acquired last year.
Salesforce’s Q3 earnings
Salesforce reported a revenue increase of 27% year-over-year (YoY) to $6.86 billion, and earnings per share (EPS) came in at $1.27, which was well ahead of estimates. The real cause of Salesforce’s decline after-hours comes from its guidance for Q4, which was $7.224 billion – $7.234 billion. This was in line with analyst estimates, but it didn’t raise guidance, which has led to the sell-off.
Is Salesforce a good investment?
Salesforce is a leader in the software as a service (SaaS) industry and provides a wide range of CRM software tools, particularly for larger businesses.
Subscription services are at record highs and this can be attributable to the digital transformation undergone by many companies in the last 18 months. Salesforce became a necessity for many businesses as they navigated the pandemic, and the “sticky” business model means it has grown and has kept a bundle of new customers as a result.
Salesforce also reported that global holiday sales transactions were $297 billion in the first three weeks of November and a further $275 billion was transacted during Cyber Week (November 23 – 29), both increasing from last year. This matters because Salesforce is the digital stronghold behind these sales, with its customers reporting more than 100 million orders in November.
Even with the short-term decline, CEO Marc Benioff said the software company is “on track to reach $50 billion in revenue by FY 2026”, so Salesforce looks to be acting on its ambitious targets, and the price-movement post-earnings appears to just be short-term oversight, particularly in a market where valuations and inflation concerns are on the rise.
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