Published - March 02, 2023 @ 11:27 AM (EET)

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Potentially easing the pressure from a team of activist investors, Salesforce Inc. (NYSE:CRM) gave a surprisingly upbeat forecast for the coming year and plans to step up stock buybacks.

In a statement Wednesday, Salesforce said profitability would increase this fiscal year and projected widening profit margins of about 27%, up from 22.5% in its recently completed year.

Co-founder and Chief Executive Marc Benioff said the company is reducing its headcount, increasing its spending scrutiny, and boosting its share repurchase program to $20 billion.

Following the results, Salesforce shares gained as much as 16% in late trading. Over the past 12 months, before the earnings release, the stock had fallen around 21%, compared to the tech-heavy Nasdaq Composite Index, which declined roughly 16%.

EARNINGS DETAILS

Despite posting a loss, allowances for extraordinary items led to Salesforce posting better-than-expected adjusted earnings of $1.68 per share on revenue of $8.38 billion. On average, analysts anticipated earnings per share of $1.36 on revenue of $8 billion for the period ending Jan 31.

From $28 million in the year-earlier quarter, Salesforce's loss widened to $98 million as the company still faces a sharp deceleration in growth. 

However, billings, a leading indicator of revenue trends, rose 13% to $14.68 billion in the fiscal quarter. Analysts had expected billings of $13.74 billion and anticipate growth to stay near the single-digit range over the next two quarters. 

Looking ahead, Salesforce projected revenue growth from $34.5 billion to $34.7 billion, up 10%, with investors pleased to see ambitious guidance for the 2024 fiscal year.

NOW WHAT

Following a half-decade of aggressive hiring and costly acquisitions, shareholders have pushed the company to cut costs. Thus, the outlook suggests that profitability is now a top priority for the pioneer of cloud applications.

Still 35% below its 2021 highs, there's more room for change before the company can claim full recovery. Elliott Investment Management, whose multibillion-dollar stake in the company became public in January, said it wasn't completely satisfied, citing that Salesforce needed "a  sustainable leadership plan and a board that demonstrates it can provide accountability through proper oversight."

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Responding to the comments, Benioff said the company had a strong team of leaders.

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PRICE ACTION: Based on 28 analyst ratings covered by TipRanks, the stock is a Moderate Buy (18 Buys, 9 Holds, 1 Sell). The average price target of $192.50 implies an upside potential of 15.03%.

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