Salesforce Surprised by Strong Earnings but Cited Macroeconomic Challenges as Main Reason to Downgrade 2022 Outlook

Salesforce Inc. (CRM) reported yesterday its unusually upbeat quarterly financials. The cloud-based customer-relationship-management company said business remained strong amid the current unfriendly economic landscape and upgraded its guidance for the year. CRM shares rallied in the extended session on Tuesday after the release. Salesforce shares surged about 8.3% after hours, following a 2.9% decline in the regular session to close at $160.24. Salesforce's stock shed close to 50% from its all-time highs. And now, on the back of its Q1 2023 results, its shares soared considerably.

For the period that ended April 30, Salesforce earned 98 cents a share, excluding one-time items, on $7.41 billion in revenue. Analysts were expecting Salesforce to earn 94 cents a share on revenue of $7.38 billion. Prior to the report, investors were concerned that a possibility of a slowdown in capital spending would be reflected in the company’s results and outlook, but the only headwind the company experienced was a substantial strengthening of the U.S. dollar.

That led Salesforce to trim its revenue forecast for the year to a range of $31.7 billion to $31.8 billion, from its forecast of $32 billion to $32.1 billion back in March. Operational efficiencies, however, allowed for Salesforce to hike its earnings forecast to a range of $4.74 to $4.76 a share, up from a previous forecast of $4.62 to $4.64 a share. The pertinent consensus estimate expected $4.66 a share on revenue of $32.06 billion for the year.

On the call with analysts, Salesforce Chairman and Co-Chief Executive Marc Benioff said the lower revenue forecast is the result of foreign exchange headwinds, particularly singling out the dollar’s jump against the Japanese yen “as we roll this revenue out from the Japanese market to our U.S. dollars.” Over the past three months alone, the dollar USDJPY, +0.59% has surged 12% against the yen, compared with the 5% to 6% rise against the euro USDEUR, +0.18% and the British pound USDGBP, +0.25%, the other main currencies to which Salesforce is exposed.

Given the current economic environment, “our whole selling strategy will change,” Benioff said at the call with analysts. “We are going to focus more on how we can deliver productivity for the customer, and lower their cost.”