Salesforce stock (NYSE: CRM) took a hit on 30th May, dropping by 21.6%, while the S&P 500 only decreased by 1%. In comparison, Oracle’s stock was down by only 5% during the same period. The significant decline in CRM’s stock price followed the company’s announcement of its first-quarter earnings for FY 2025. Salesforce missed revenue expectations for the quarter and provided lower-than-expected guidance numbers for Q2 and the full year FY 2025. Year-to-date, the stock is down by 19% compared to a 10% rise in the S&P 500, and it is currently trading at $218 per share, reflecting a 27% discount from its fair value estimate of $298 by Trefis.
Over the past three years, CRM stock has seen little change, moving from $225 in early January 2021 to approximately $215 currently, while the S&P 500 has increased by about 40% during the same period. The performance of CRM stock has been volatile relative to the index, with returns of 14% in 2021, -48% in 2022, and 98% in 2023. In comparison, the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating that CRM underperformed in 2021 and 2022. The Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year, providing better returns with less risk, even in uncertain macroeconomic environments. The question now is whether CRM will continue to underperform the S&P 500 or see a significant rebound amidst current economic conditions.
In its recent earnings report, Salesforce reported total revenues of $9.13 billion, up by 11% year-over-year, driven primarily by a 12% increase in subscription and support revenues. While all sub-segments under subscription and support experienced growth, the sales cloud saw a 10% increase, the service cloud rose by 11%, and integration and analytics jumped by 24%. Salesforce generates around 95% of its revenues from subscription and support income. Operating expenses decreased in the quarter, resulting in an operating margin of 18.7%, a significant improvement from 5%. Net income also increased from $199 million to $1.53 billion.
For FY 2024 (Feb-Jan), Salesforce’s top line grew by 11% year-over-year to $34.9 billion, driven by a 12% increase in subscription and support revenues. Total expenses as a percentage of revenues decreased during the year, leading to an operating margin of 14.4% versus 3.3%. The GAAP net income surged from $208 million to $4.14 billion. Looking ahead, the company expects Q2 revenues to be between $9.20 billion and $9.25 billion, and overall revenues for FY 2025 are estimated to reach around $38 billion. Additionally, the revenue per share is projected to increase to $37.59, resulting in a valuation of $298 based on a P/S multiple of 7.9x.
Overall, Salesforce’s recent stock performance and earnings report reflect a challenging period for the company, with a significant decline in stock price post-earnings announcement. However, the company’s subscription and support revenues have shown steady growth, contributing significantly to its overall revenue. With a strong operating margin and positive net income growth, Salesforce remains optimistic about its future revenue projections for FY 2025. Whether the company can bounce back and outperform the S&P 500 remains to be seen in the coming months amidst a volatile market environment.
