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Salesforce Sees 23% Growth Anchored By Strong Platform Growth
by Daniel Newman | August 25, 2021

The News: Salesforce shares rose as much as 3% in extended trading on Wednesday after the enterprise software maker reported fiscal second-quarter earnings and forward guidance that exceeded analysts’ estimates.

Here’s how the company did:

  • Earnings: $1.48 per share, adjusted, vs. 92 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $6.34 billion, vs. $6.24 billion as expected by analysts, according to Refinitiv.

Revenue increased 23% year over year in the quarter, which ended July 31, the company said in a statement. In the prior quarter revenue grew 23%. Read the full story on CNBC.

Analyst Take: The results in the Second quarter of its fiscal ’22 represents a continuation of consistent results from Salesforce, which indicates continued strong demand for business applications.

While the overall results delivering 23% revenue growth for the quarter, this follows another 23% revenue growth during its fiscal first quarter. The company also outperformed EPS, and the market responded kindly with a solid after hours jump in the share price.

Segment Performance Shows Platform Momentum and Stable Growth Throughout 

While the Sales Cloud tends to represent the best known component of the Salesforce portfolio, the most pronounced growth in the quarter once again came from the Platform and the Marketing & Commerce Cloud. This builds on a multi-quarter trend that has seen these segments grow faster than its core Sales and Service clouds, albeit only slightly. The platform, which has seen significant growth since the acquisitions of Mulesoft and Tableau, has usurped the sales and service clouds to become consistently Salesforce’s largest revenue generator and among its fastest growing segments. This segment will undoubtedly be an even larger component of Salesforce’s revenues after the completion of the Slack acquisition and based upon the early indicators from the Slack-First launch, I see this as extremely core to the longer-term growth of Salesforce.

Last quarter Salesforce began to breakout MuleSoft and Tableau revenues. I was a fan of this move as it gives investors a better idea of the performance of these large acquisitions and gave clarity as to the contribution they make to the platform category. MuleSoft came in at $372 million for the quarter and Tableau at $469, it shows the platform revenue is well diversified, and the respective growth rates of 39% and 22% YoY.

Geographic Growth Led by APAC and Europe, But 20%+ in all Regions

With Salesforce growth in APAC and EMEA outpacing Americas, but showing steady performance and growth in all regions, I view this as solid growth distribution across region and I see 20%+ growth as a key metric to sustain throughout the remainder of FY ’22.

Rising TAM Provides Runway for Growth

Salesforce Kicks Off Its Fiscal 2022 Campaign With a Big Q1

I continue to see the multiyear trajectory of the TAM with an 11% CAGR as a promising runway for growth and the company will need this growth to meet its long-term goals. With CEO Marc Benioff’s aggressive target of $35 billion by 2024, it would take growth close to 20% for the next three years to meet that objective. The recent run of YoY growth indicates the company is on track.

Furthermore, the opportunity to capitalize on the expanding TAM is there with the company’s impending acquisitions, and the growth of demand for SaaS, and secular trends and shifting behaviors driven by the pandemic that Salesforce is well positioned to address.

A Raise in Guidance

Salesforce guided to 91 – 92 cents in adjusted fiscal third-quarter earnings per share on $6.78 billion to $6.79 billion in revenue. This beats expected results that had been forecasted as Analysts polled by Refinitiv had been looking for 82 cents in adjusted earnings per share and $6.66 billion in revenue. It’s always good to see guidance above analyst targets.

On a more bullish note, Salesforce raised its earnings and revenue guidance for the full 2022 fiscal year. The new guidance of $26.2 Billion to $26.3 Billion, represents approximately 23% – 24% year-over-year growth

Overall Impressions of Salesforce FY ’22 Q2 Results 

The results and longer term outlook remain positive for Salesforce. The company will need to perform well in a sustained matter to grow at the pace of  its ambitions. But as I suggested,  integration and growth of its inorganic investments will be a catalyst for top line growth.

I continue to be encouraged by the company’s investment and focus on platform and hybrid cloud. This high-growth component of the business remains critical to its longer term growth. Last quarter’s reveal of MuleSoft and Tableau revenue indicated that deeper integration is taking hold, and with the completion of the $27 billion slack acquisition can be efficiently returned to shareholders through sales, innovation, integration, and intrinsic value. The acquisition also serves as a platform to significant innovation in a post-pandemic world.

Overall, it is growth all around. Salesforce is doing what Salesforce does, and has done for many years in that capacity, which should encourage investors about its prospects in the future.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article.

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Image Credit: Salesforce

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio