Salesforce.com
Last year, Salesforce bought Slack for $27 billion which pressured shares and led to underperformance as many believed the price tag was too high and the deal wouldn't be accretive. However, the latest earnings reports dispel this notion and shares are moving towards previous highs.
Inside the Numbers
In Q2, Salesforce reported $1.48 in earnings per share which were better than expectations of $0.92 cents per share. Revenue also beat at $6.34 billion vs $6.24 billion. This was a 23% increase from 2020's Q2.
Growth was uniform across most major segments as its Platform and Other unit, which includes MuleSoft and Tableau data-analytics software generated $1.88 billion in revenue, a 24% increase. Service Cloud contributed $1.6 billion in revenue, a 23% increase. Sales Cloud added $1.5 billion in revenue, a 15% increase.
For its next quarter, Salesforce expects $0.92 per share in earnings and $6.8 billion in revenue. Both figures are above expectations by a decent amount. It also increased full-year guidance above expectations by an even greater margin. It forecasts Slack adding $530 million in revenue which is also above expectations as it's growing at a 40% rate.
The company is also successfully integrating Slack by selling its products through the app. This is a more effective sales channel than hiring salespeople and is leading to an expansion in operating margins by 1.8%.
Stock Price Outlook
Salesforce's Q2 earnings was an important milestone for a couple of reasons. One is that it's maintaining its growth rate despite so many tech companies which have experienced slowing sales due to the economy remaining normal.
Further, the Slack acquisition was met with skepticism but it's already paying off in terms of increasing sales and expanding margins. Further, it's growing at a 40% rate and has the potential to become a new sales and customer acquisition channel for Salesforce in a much more cost-effective and organic manner.
Overall, Salesforce is a great company that is hitting on all cylinders. Double-digit revenue growth and margin expansion are ingredients for the stock to keep rallying.