Salesforce: Don’t Forget Core Businesses

Salesforce's FQ3 earnings disappointed investors on two metrics: FQ4'22 revenue guidance (7.23B) and cRPO YoY growth (19% and 15% organic). Both slightly missed expectations. Significant FX swings and scaling challenges at MuleSoft contributed to the weak guidance. CRM has broken out Tableau and MuleSoft in a separate segment as "Data," giving investors a better view of CRM's term licensing businesses. In addition, investors may also have some concerns that, as Bret Taylor becomes the Co-CEO, more large acquisitions will be inevitable, therefore depressing operating margin. Nonetheless, the FY23 non-GAAP operating margin guidance of 20% hasn't changed since the analyst day. Despite some short-term headwinds, the strength of CRM's core businesses is encouraging. Sales Cloud growth reaccelerated to 17.3% YoY and Service Cloud to 24.2% YoY, with each generating $6 billion in revenue on an annualized basis. Slack's revenue of $280 million is also better than the guided $ 250 million. That being said, many large enterprises have become structurally more profitable after the pandemic and are more willing to upgrade their technology stack. CRM is one of the largest beneficiaries of the trend of front office digitalization.

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Salesforce: Sales Cloud Revenue and Growth
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Salesforce: Service Cloud Revenue and Growth

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