Salesforce Inc – Reaffirms revenue guidance May 31, 2024 90

PSR Recommendation: BUY Status: Upgraded
Target Price: 305.00
  • 1Q25 revenue/PATMI was in line with expectations at 24%/25% of our FY25e forecasts. Revenue grew 11% YoY to US$9.1bn due to higher subscription sales. PATMI spiked 670% YoY (44% normalized) driven by higher operating leverage.
  • For 2Q25e, Salesforce expects revenue to grow by 8% YoY to US$9.2bn led by strong demand for its data integration and analytics products like MuleSoft and Tableau. The company reaffirmed FY25e revenue guidance of US$37.9bn (+9% YoY) but lowered its GAAP operating margin to 19.9% from 20.4% (FY24: 14.4%).
  • We upgrade to BUY from ACCUMULATE recommendation as we account for recent share price performance. We lower our DCF target price to US$305.00 (prev. US$323.00) with an unchanged WACC of 7% and a terminal growth rate of 4%. Our FY25e revenue/PATMI estimates are nudged lower by 1%/2% to reflect macro headwinds and higher expenses. Catalysts for Salesforce include ongoing margin expansion, robust free cash flows, and resilient demand for its data cloud offerings as enterprises look to form a 360-degree view of their customer data to provide better customer experiences.















The Positives

+ MuleSoft and Tableau products provided much of the strength. In 1Q25, subscription and support revenue grew 12% YoY to US$8.6bn. On a product level, revenues from Sales Cloud and Service Cloud grew 11% YoY to US$2.0bn and US$2.2bn, respectively. Data Cloud remained the fastest growing segment, increasing by 25% YoY to US$1.4bn, with MuleSoft (+27% YoY) and Tableau (+21% YoY) offerings being the largest contributors. Salesforce benefited from continuous product enhancements and its pricing and product bundling strategies.


+ Operating margins expanded on higher operating leverage. In 1Q25, Salesforce’s OPEX fell by 8% YoY to US$5.3bn, resulting in an operating margin expansion of 1,370bps YoY to 18.7%. This was mainly because the company continued to focus on improving cost efficiencies through headcount reductions and lower sales-related costs. In Jan, Salesforce reportedly laid off about 700 employees, or 1% of its total workforce (~72,000).




The Negative

– Soft 2Q25e revenue guidance. For 2Q25e, Salesforce expects total revenue to grow 8% YoY to US$9.2bn (2Q24: 11% YoY), missing consensus estimates of US$9.4bn. The significant slowdown is mainly because of a tough macroeconomic environment. Management highlighted that the company is witnessing continued measured buying behavior, leading to an elongated sales cycle, additional deal approval layers, and deal size compression.

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