Company beats on revenue and outlook, stock pops as AI remains central

Salesforce (CRM) reported its second quarter earnings on Wednesday after the bell, clocking beats on revenue, margins, and earnings per share.

Shares of the software giant have been riding the artificial intelligence hype train and, leading into earnings, the stock was up over 61% year to date, as the company has invested in the “AI wave” in tech.

Salesforce stock climbed in after-hours trading, jumping over 5%.

Salesforce has made substantial investments in AI, and investors were looking to see results sooner rather than later.

“What people are looking for is kind of the shift,” Tematica Research chief investment officer Chris Versace told Yahoo Finance Live. “The key here is to go from: Is this the new new thing or is it the real real thing? That’s really what investors want to understand. To some extent … we got a little head-faked on some promises that just really haven’t delivered relative to the hope or hype, if you will.”

The earnings rundown

Here are the key numbers that Salesforce reported as compared to analysts’ estimates, according to Bloomberg data:

Revenue: $8.60 billion versus $8.53 billion estimated

Adjusted EPS: $2.12 versus $1.90 estimated

Adjusted operating margin: 31.6% versus 28.2% estimated

Free cash flow: $630 million versus $445.1 million estimated

Additionally, the company raised its 2024 revenue outlook to $34.7 billion to $34.8 billion, after previously seeing $34.5 billion to $34.7 billion, beating estimates of $34.66 billion.

“In order for a stock to work, not only do you have to deliver a solid quarter, but you have to give relatively pristine guidance,” Versace told Yahoo Finance Live ahead of the results.

Salesforce logo at its Corporate office in New York, NY, USA on August 18, 2022. (Getty Images)

Salesforce logo at its Corporate office in New York, NY, USA on August 18, 2022. (Getty Images)

What we’re watching: AI

AI came into this earnings cycle as the buzzword for Salesforce, and the company certainly seems to be linking its success back to AI.

“Based on our performance and what we see in the back half of the year, we’re raising our fiscal year ‘24 revenue, operating margin, and operating cash flow growth guidance,” Salesforce CEO Marc Benioff said in a statement. “As the #1 AI CRM, with industry-leading clouds, Einstein, Data Cloud, MuleSoft, Slack, and Tableau, all integrated on one trusted, unified platform, we’re leading our customers into the new AI era.”

Expect more AI chat in the earnings call later today.

What analysts were saying pre-earnings:

“While the macro is not roses and rainbows and CRM is still battling through various headwinds, overall we saw stronger cross-sell activity this quarter from our checks and particular strength out of the Tableau front with a number of larger more transformational suite wide deals inked during the quarter. We also believe Benioff & Co. is making major strides around integrating Slack on the back-end into the broader CRM suite and this could fuel some major collaboration deals we believe as the pipeline is finally starting to build on this key acquisition.” –Dan Ives, Wedbush

“Our CRM survey & checks indicate the demand environment remains sluggish. Expectations are low for F2Q due to mixed demand checks and relatively tough comps. The focus will be on whether CRM can deliver upside to the 28% F24 margin guide. We expect commentary on restructuring and AI.” –Brent Thill, Jefferies

It was an interesting quarter for CRM with a heavily marketed, yet relatively underwhelming AI event in June, organizational changes and a surprise price increase announcement towards the end of the Q. Our quarter end fieldwork was decidedly mixed.” –Tyler Radke, Citi

This story is being updated.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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