Salesforce Reports A Decent Quarter With A Big AI Promise

Salesforce Inc (NYSE: CRM) not only topped estimates across the board but also raised full year earnings guidance. However, stock dropped 7% upon the report owed to the fact that capital expenditures were higher than expected.Its shares are under pressure as customers are backing away from consulting deals with the software giant experiencing its slowest pace of growth in 13 years. Salesforce is another tech powerhouse that integrated AI tools into its business, but it is behind its rivals Microsoft Corporation (NASDAQ: MSFT) and Google.

First Quarter Highlights

For the quarter ended on April 30th, revenue amounted to $8.25 billion, topping Refinitiv’s consensus of $8.18 billion. But the revenue rise of 11% was overshadowed by a 36% rise in capital expenditures that amounted to $243 million, greatly topping by StreetAccount consensus of $205 million. The resulting net income amounted to $199 million, or 20 cents per share, rising from last year’s quarter when it amounted to $28 million, or 3 cents per share. Adjusted earnings amounted to $1.69 per share, below Refinitiv’s estimated of $1.61 per share.

Second Quarter Guidance

Adjusted earnings were guided in the range between $1.89 and $1.90 per share on the back of a revenue range between $8.51 billion and $8.53 billion. Analysts gathered by Refinitiv guided for adjusted earnings of $1.70 on revenue of $8.49 billion.

2024 Forecast

With the revenue forecast remaining intact, adjusted earnings were lifted compared to the guidance provided in March. They are now expected in the range between $7.41 and $7.43 per share on $34.5 billion to $34.7 billion in revenue. Refinitiv’s poll of analysts guided for a fiscal year revenue $34.65 billion with resulting adjusted earnings of $7.14 per share. As CEO Marc Benioff stated, with the operating margin for the quarter significantly exceeding the target, it is now called at 28% for the fiscal year, compared to 27% guided back in March.

Challenges

Chief Operating Officer Brian Millham noted the trend of clients taking longer to close deals and are looking at them more carefully. Also, professional service businesses are seeing a weakened demand for multiyear transformations as consumers are more interested on quick wins and strategies that bring value as soon as possible. In response, Salesforce is making efforts to automate the sales process and improve the productivity of its salespeople. Chief Financial Officer Amy Weaver expects those issues to remain.

The AI Race Against Microsoft And Google

During the reported quarter, Salesforce revealed it is following Microsoft’s footsteps as it announced an AI tool its salespeople will use. Einstein GPT is a generative artificial intelligence technology designed to help salespeople, marketers and customer-service agents be more efficient at their jobs. Even the mighty Google got threatened by ChatGPT, as instead of “googling” questions on Google, one can just ask the ChatGPT. Although Google launched Bard AI in response, it was actually one of the first in the conversational game but it missed the boat by launching its own consumer product based on Lamda. Google is hoping to turn things around with Bard which is powered by the language model, but Microsoft is the one troubling Salesforce as besides AI tools, it is its main competitor with Dynamics 365. But, CEO Marc Benioff promises a revelation through Salesforce’s AI-enhanced products that will be added to one of the company’s most recently acquired assets, the messaging platform Slack.

All in all, Salesforce reported a decent quarter with a profit rise of 68% year-to-date by the market close. With AI claimed to be the company’s biggest assets, Salesforce promises to be a worthy rival to Microsoft and Google in this arena.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

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