Salesforce Inc. has recently shifted its focus from growth to profits, and the company's latest earnings report demonstrates a successful combination of both. This development has been well-received by Wall Street, with positive reactions from analysts.
Kirk Materne of Evercore ISI praised Salesforce's ability to increase free cash flow per share in a challenging economic environment. Additionally, the company's raised revenue forecast for fiscal 2024 indicates a consistent demand environment, which further encouraged Materne. He maintained his outperform rating on the stock and raised his price target from $240 to $275.
Scott Berg from Needham noted that Salesforce exceeded expectations in terms of current revenue performance obligations (cRPO), a crucial metric for the company. He was particularly impressed by the broad strength demonstrated by four out of the five revenue reporting segments, as they accelerated their revenue growth compared to the previous quarter.
Berg also commended Salesforce's improved operating efficiencies, exemplified by achieving a 30% operating margin quarter. He further believes that the company's goal of reaching a 35% margin is realistically attainable, which would positively impact the valuation of the stock. As a result, Berg set a buy rating and a target price of $250 for the stock, which has already seen a premarket trading increase of nearly 6% on Thursday.
Alex Zukin of Wolfe Research titled his note to clients: "Addicted To Margins, But Still Hooked on Growth," highlighting Salesforce's dedication to improving profits while maintaining its commitment to growth.
Salesforce's Performance Generates Mixed Reactions from Analysts
In a recent report, a respected analyst highlighted both positive and negative aspects of Salesforce's performance. While the company experienced challenges in the macro environment, including smaller deals that took longer to close, overall results exceeded expectations. The analyst noted that Salesforce demonstrated impressive growth in both cRPO (contracted remaining performance obligation) and its full-year guidance.
Another analyst took a more cautious stance, stating that while Salesforce made significant strides in improving margins, these achievements were already priced into the stock. Concerns were raised regarding the company's ability to sustain and accelerate growth in a saturated cloud market with increased competition. Furthermore, the analyst expressed doubt about the effectiveness of driving large price increases as a growth strategy.
Addressing margins, the second analyst acknowledged the potential for incremental improvement but warned that substantial progress could be challenging and the full impact of cost-cutting measures had yet to be realized.
Despite these differing viewpoints, both analysts adjusted their target prices, with one increasing it to $159. The mixed reactions indicate a need for further clarity on Salesforce's ability to expand its top line at a double-digit rate.