Salesforce Q4 earnings preview: Where next for CRM stock?

This article was republished on 4/27/2023 from our UK site, and the original posting date is listed above.

When will Salesforce release Q4 earnings?

Salesforce will release fourth quarter and full year 2022 earnings after US markets close on Wednesday, March 1. A conference call will be held on the same day at 5 PM ET.

Salesforce Q4 earnings consensus

Revenue is forecast to rise 9.2% to $7.99 billion in the fourth quarter and adjusted EPS is expected to jump over 62% from last year to $1.37.

If achieved, Salesforce is set to report a 17% rise in annual revenue to $30.99 billion and a 3.2% increase in full year adjusted EPS to $4.93. That would be at the very upper end of Salesforce’s guidance range.

Salesforce Q4 earnings preview

Salesforce, watched as a key bellwether stock to gauge business spending, has been pivoting its focus toward profitability in response to a sharp slowdown in growth.

In fact, this is expected to be the fifth consecutive quarter of slower topline growth as businesses become more stringent with their spending and cutback their budgets. For example, there were reports just two weeks ago that social media platform Twitter had slashed its annual budget for Salesforce’s customer management software to just $5 million from $20 million, demonstrating the depth of the cuts being made.

However, Salesforce has stemmed the bleeding at the bottom-line following the steep declines in profits we saw in the first half of 2022. This is forecast to be the second consecutive quarter of earnings growth and that is its reward for sharpening its focus on costs. Salesforce has committed to delivering ‘profitable growth’ and ‘consistent margin expansion’.

Profitability should continue to improve in 2023 despite the slowdown in demand after Salesforce announced in early 2023 that it was cutting 8,000 roles – representing 10% of its workforce – to cut costs. Salesforce admitted that it had been over-zealous with hiring when times were good as demand for tech spiked during the pandemic, leaving it bloated now that times are tougher and the outlook more uncertain. Salesforce had just under 80,000 full-time workers at the end of October, more than twice the 36,000 it had at the end of January 2020 – demonstrating there is still plenty of fat to cut. This will, however, see Salesforce book around $800 million to $1 billion worth of charges in the fourth quarter as it starts to make severance payments and payout compensation. The restructuring won’t be substantially completed until the end of the new financial year to the end of January 2024.

Co-CEO Bret Taylor is stepping down, so we could see Marc Benioff, who will now lead the company as sole CEO, outline his view on how to revitalize growth in a tough environment or, failing that, more plans to reduce expenses. 

That is all the more likely considering management have been coming under fire from activist investors to get a better grip on costs. They have already successfully pushed for a shake-up of management after three new directors joined the board in January. That saw the boss of hedge fund ValueAct Capital Mason Morfit, Mastercard’s chief financial officer Sachin Mehra, and Arnold Donald, who used to run cruise liner Carnival, join Salesforce’s management team. Reuters reported earlier this month that the board and one of the activists, Elliott Management, were close to reaching a deal after the investor bought a stake in Salesforce back in January and said it would nominate several candidates to join the board. That means the board could be shaken up further.

Any further crackdown on costs is likely to make the margin outlook for 2023 rosier than the guidance for sales growth. Wall Street believes Salesforce can improve its adjusted operating margin to 22.4% over the coming year from the 20.7% penciled-in for the recently ended one even as revenue growth slows to 10% from 17%. Analysts are looking for annual revenue guidance of $34.1 billion and adjusted EPS of $5.78. We could also see Salesforce launch new buybacks this year to sweeten investors.

Salesforce will also provide guidance for the first quarter, with analysts looking for 8.5% revenue growth to $8.0 billion and a 34% jump in adjusted EPS to $1.31.

Where next for CRM stock?

Salesforce shares have been under pressure since the start of February as the rally that started late last year, prompted by the stock sinking to fresh post-pandemic lows, has lost steam. The stock hit a one-month low on Friday but is trading up 0.7% in premarket trade today.

The stock has flip-flopped over the $166 ceiling we saw over the three months to November, but this could resurface as a level of resistance going forward. If the stock can regain momentum and reclaim this level, then a larger jump above $192 is on the cards. The 50 brokers that cover Salesforce see slightly less potential with an average target price of $189.90, but still see over 15% upside from current levels. Notably, we have just seen the 50-day moving average cross back above the 100-day moving average, providing a fresh bullish sign – although this signal is not as strong as a golden cross.

The 200-day moving average provided some support on Friday but has not been reliable in the past. We could see it slump back toward the other moving averages around $151 mark if loses more ground. A slip below here opens the door to sub-$139 before those post-pandemic lows come back into play.