The best-performing stock in the Dow Jones Industrial Average this year is getting a further lift from its earnings report after it raised its forecast and its third-quarter results beat Wall Street targets. The customer relationship management software provider benefited from solid demand for its products in an uncertain economy, while disciplined cost-cutting helped to boost margins.
Its share rose 7% after the bell as it forecast fourth-quarter revenue and profit above expectations. It now expects to bring in between $9.18 billion and $9.23 billion of sales in the period, up from its previous forecast for between $8.04 billion and $8.6 billion. It also revised its full-year adjusted profit view to between $2.16 per share and $2.26 per share, up from its earlier prediction of between $2.05 per share and $2.06.
During the quarter, subscription and support revenues climbed by 11% year-over-year to $8.72 billion. Other income jumped by 27% to $0.50 billion, and net earnings rose by 78% to $2.12 per share, beating the consensus estimate of $1.91 by a wide margin.
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Analysts said the results indicated that the company’s diversified business model is resilient, with each product segment contributing quarterly profits. Its popular CRM system is complemented by several other software tools, such as its analytics and data-mining platforms and its artificial intelligence (AI) capabilities, which are increasingly sought after by businesses to help them make more informed decisions in the marketplace.
Salesforce said its strong performance was driven by its sales, service products, and AI features, each delivering double-digit growth. It also cited its pricing discipline and a focus on innovation as factors behind the performance. The company has rolled out AI features for its sales and service cloud offerings, and an AI platform focused on marketing and data. It has also increased prices for its significant offerings by an average of 9% since August.
Third Bridge analyst Charlie Miner praised the results, saying they show that the company can leverage its scale by adding AI capabilities across its portfolio of products and services. He added that the surge in expected AI investment over the next 12-18 months should help to boost its sales and profit.
Mizuho’s Gregg Moskowitz also praised the report, raising his price target on the stock by 2% to $255 and maintaining a “Strong Buy” rating. He cited the robust quarterly performance, reaffirming its guidance, and the “encouraging outlook for the rest of 2024” as critical positives. He expects the firm to be able to grow annual revenues by more than 20% over the next several years. That would be a significant acceleration in the company’s historical growth rate and is well above the current pace of the broader technology sector, which is expanding at about 15%.