Saleforce.com Stock is Best of Breed Getting Discounted

Customer relation management (CRM) software company Salesforce.com NYSE: CRM stock has been plunging on its latest top and bottom-line guidance stemming from the fiscal Q3 2022 earnings call. While the fiscal Q3 2021 earnings were very strong, the lowered guidance shocked investors. Arguably, Salesforce is the world’s leading CRM platform widely considered best of breed. The lowered guidance for next year is letting some of the helium out of the balloon but the demand for its products is still robust creating a discount for investors. The Slack acquisition was accretive and performed very impressively with 44% growth in customers and 176% growth in adoption of its Slack Connect product. The Company historically low balls the guidance and it may play out this time. Prudent investors seeking a best-of-breed enterprise software play can watch for opportunistic pullbacks in shares of Salesforce.  

Fiscal Q3 2022 Earnings Release

On Nov. 30, 2021, Salesforce released its fiscal third-quarter 2022 results for the quarter ended October  2021. The Company reported earnings-per-share (EPS) profits of $1.27 versus a profit of $0.92 consensus analyst estimates, a $0.35 beat. Revenues grew 26.6% year-over-year (YoY) to $6.86 billion, beating analyst estimates for $6.8 billion. Salesforce CEO Mark Benioff commented, “We delivered another phenomenal quarter, fueling strong revenue growth, margin, and cash flow. Salesforce is more relevant and strategic than ever as every company accelerates its digital transformation journey. Just as we’ve helped our customers navigate the pandemic, we’re now guiding them toward greater growth, customer success, health and safety, and trust. With the tremendous strength of our Customer 360 platform and Slack, we’re on track to reach $50 billion revenue in FY26.”

Lowered Guidance 

Salesforce surprisingly lowered its fiscal Q4 2022 guidance with EPS expected between $0.72 to $0.73 versus $0.82 consensus analyst estimates on revenues between $7.224 billion to $7.234 billion versus $7.23 billion estimates. The Company lowered Q1 2023 revenue guidance to a range between $7.215 billion to $7.250 billion versus $7.36 billion analyst expectations. The Company sees fiscal full-year 2023 revenues between $31.70 billion to $31.80 billion versus $31.81 billion analyst estimates.

Conference Call Takeaways

Co-CEO Benioff and Co-CEO Brett Taylor basically both presented the conference call in a conversation-like format taking turns. Benioff set the tone, “Well, it's been an amazing 6 quarters. And I'll tell you, the last 6 quarters, well, that's -- they have been unlike anything Salesforce has ever been through, that I've ever been through. And we -- I would say this is -- things are still changing and transforming. We're almost in a pandemic age, and we're kind of getting used to what it means to be inside of a pandemic. And yet at the same time, Salesforce has never been more successful.” He continued, “Wasn't it awesome? And our sales and service clouds, well, they've become massive individual businesses at this point and generating more than $6 billion each. I mean that's bigger than a lot of cloud companies that I know by themselves and they're continuing to grow in the double-digits. It's amazing. I mean Sales Cloud is amazing this quarter. And operating margin in the quarter was also very good at 19.8%, and that exceeded my expectations. And we delivered $404 million in operating cash flow, up 19% year-over-year. And now for fiscal year '22, we're raising our revenue guide again. Just raised it at Investor Day a couple of weeks ago and now we're raising it again to $26.4 billion, at the high end of the range, representing 24% projected growth year-over-year. That's a $100 million raise since Q2 when we initiated guidance for revenue in December of last year. We've now raised guidance, since that initiation, $850 million, pretty awesome. And we're delighted to raise our full-year operating margin once again to 18.6%. We have obviously a new team. We have a new structure now. We're in a new world. We're talking about that. But we have an incredible new model, and it's really reflected in this incredible operating margin performance really for this year and also the operating margin guide for next year as well. And this is really an incredible reflection of this new way that we have, the new way we're thinking, and how we're driving a leading Salesforce. And as we shared at our Investor Day in September, we're expecting fiscal year '23 revenue guidance of $31.8 billion, that's the high end of our range and operating margin of 20%.”

Slack Acquisition

Co-CEO Bret Taylor provided color on Slack, “I also want to talk about Slack. So Slack outperformed our expectations in the first full quarter as a part of the Salesforce family. The number of customers on Slack who spent over $100,000 was up 44% year-over-year. And the adoption of Slack Connect was up an astonishing 176% year-over-year. Slack is not just a product, Slack is a network, and it's just incredible to see that growth. Slack also continues to innovate at an unbelievable pace. Slack Huddles, which is Slack's new real-time audio capability, is already used weekly by over 1/3 of Slack users. And Slack Clips, the new asynchronous video capability, are being played nearly 1 million times a week. And this month at Slack Frontiers, which I hope all of you have watched; and if you haven't, you can watch it online. Stewart and the team are now the next generation of Slack’s platform, and it's going to truly transform the way companies think about workflows.”

CRM Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for CRM stock. The weekly rifle chart collapsed sharply on the earnings release falling hard on the $299.58 weekly market structure high (MSH) trigger. Shares collapsed to the $251.82 Fibonacci (fib) level before attempting a bounce that got rejected. The weekly 5-period moving average (MA) resistance is at $272.45 followed by the 15-period MA at $280.75. The weekly stochastic formed a bearish mini inverse pup as it drops through the 40-band. The weekly market structure low (MSL) buy triggers above $270.56. The daily rifle chart formed a new inverse pup breakdown in a falling 5-period MA at $259.99 and 15-period MA at $266.22. The daily lower Bollinger Bands (BBs) sit at $228.97 as the stochastic forms a mini inverse pup through the 20-band. Prudent investors can monitor for opportunistic pullback levels at the $231.40 fib, $225.13 fib, $217.43, $210.90 fib, $203.86 fib, $198.86 fib, and the $190.17 fib level. Upside trajectories range from the $286.36 fib up towards the $334.09 fib level.