A Better-Than-Expected Forecast Boosts Salesforce Shares By 16%

Salesforce shares surged 16% in extended trading on Wednesday after the company beat Wall Street profit estimates and issued a better-than-expected forecast.

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The company did as follows:

• Earnings: Refinitiv data show that the company's adjusted earnings were $1.68 per share, versus analysts expectations of $1.36 per share.
• Revenue: there was an $8.38 billion increase in revenue compared to the $7.99 billion expected by analysts, according to Refinitiv.

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There has been a 14% increase in Salesforce's revenue over the past year in the fiscal fourth quarter, which ended on Jan. 31, consistent with the previous quarter, according to a company statement.

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An estimated $98 million loss, or 10 cents per share, was reported by the company in the quarter that ended March 31, which compares to a loss of $28 million a year ago.

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Marc Benioff, Salesforce's co-founder, and CEO announced in January that the company would cut 10% of its workforce, a figure that represents over 7,000 people, and that the restructuring strategy would result in a loss of $828 million during the quarter as a result.

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Salesforce's profitability has become a higher priority in recent months as it has received pressure from an influx of activist investors, including Third Point, Elliott Management, and Starboard Value, which have pushed the organization to increase profitability. ValueAct Capital CEO Mason Morfit has been added to the board of directors of the company, according to a press release. Earlier this week, Bret Taylor, who had been running Salesforce as co-CEO with Marc Benioff, stepped down from his position as president and CEO.

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According to Amy Weaver, Salesforce's finance chief, on a conference call with analysts, the past 90 days have been "very intense."

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The adjusted operating margin for the second quarter of the year, at 29.2%, was the highest in the company's history. A goal of 25% operating margin for Salesforce fiscal 2026 was set in September as part of the company's investor day.

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“I'm glad to be able to share with you that six months ago, at our Dreamforce Investor Day, we shared with you our comprehensive transformation plan, the new day for profitable growth," said Benioff during the conference call. “As we enter the fourth quarter of the year, things have changed a bit. Our organization realized that the timeframe for implementing the transformation plan needed to be accelerated radically. It was imperative that we press the hyper-space button and move the two-year goals forward quickly and exceed them as soon as possible."

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Salesforce CEO Marc Benioff announced on Tuesday that it has disbanded its board committee on mergers and acquisitions, and is working with Bain to review the company's operations.

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In its fiscal first-quarter earnings guidance, the company expected adjusted earnings per share of $1.60 to $1.61 per share and revenue of $8.16 billion to $8.18 billion for the quarter. The median estimate of analysts surveyed by Refinitiv was $1.32 in adjusted earnings per share for the company and $8.05 billion in revenue for the quarter.

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Salesforce expects its adjusted earnings per share for the full fiscal year of 2024 to be $7.12 to $7.14, while revenue for the full fiscal year is expected to be $34.5 billion to $34.7 billion. According to analysts polled by Refinitiv, consensus earnings per share for the quarter were $5.84, and revenues of $34.03 billion were expected. As part of the plan, a 27% adjusted operating margin is expected to be achieved in the fiscal year 2024 and a 30% margin in the first quarter of 2025.

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This guidance is based on the assumption that there will be no improvement in the longer sales cycles, increased spending requirements, and compression of deals that the company has seen over the past three quarters, according to Weaver. Brian Millham, Salesforce's operating chief, said the company ran into weakness in the financial services industry and the technology industry in the fourth quarter of its fiscal year.

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Announcing its plans to expand its share buyback program, Salesforce announced Friday that it has set aside $20 billion for the purpose of repurchasing shares, following an announcement of its first repurchasing commitment of up to $10 billion back in August.

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The shares of Salesforce have risen 26% so far this year, excluding Wednesday's after-hours trade, which puts it ahead of the S&P 500 index, which is up 3% for the same period.