Salesforce Earnings This Week: 3 Key Things to Watch For

Investors are looking for signs that Salesforce can adapt and prosper in a challenging economic environment.
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With Salesforce slated to report its latest financial results this week, investors are about to learn more about how the coronavirus pandemic has impacted demand for enterprise software.

Analysts polled by FactSet are expecting earnings of 69 cents per share on revenue of $4.85 billion for the quarter ending April 30, with nearly all having lowered estimates for the CRM giant in recent weeks.

Here are a few key themes to watch for in Salesforce’s  (CRM) - Get Report upcoming earnings on Thursday, May 26, after the close.

1. Demand Outlook

Analysts are anticipating muted sales growth for its first fiscal quarter, which ended April 30, followed by a slight uptick to $5.03 billion for the second quarter. Rosenblatt Securities analyst Yun Kim, who recently initiated coverage of Salesforce with a sell rating, wrote this month that “large scale business application deployment is becoming a lower priority among large organizations,” which have been a key growth driver for Salesforce in recent years.

Investors will be closely watching results and commentary on Salesforce’s acquired firms as well. Prior to the pandemic, analysts had anticipated a strong wave of renewals for data visualization firm Tableau, for example -- but some customers may have declined to do so in an uncertain economic environment. Results from fast-growing Mulesoft, too, will shed light. Speaking at a shareholder conference in early April, Simon Parmett, CEO of Mulesoft, said that demand may be impacted by "market dynamics" its diverse customers are facing, but that it was too early at the time to make specific predictions. 

2. COVID-19 Response

In the current environment, Salesforce has pivoted quickly to spin up new initiatives and partnerships that could help to mitigate any impact to its core cloud offerings. One such initiative is two recently announced deals with California and New York City to help provide software to manage contact tracing, which triggered an uptick in shares after the partnerships were announced earlier this month. 

RBC Capital Markets analyst Alex Zukin wrote this month that deals of this type “represent a meaningful near-term monetizable opportunity that have the potential to move Salesforce into the group of companies whose businesses are seeing increased demand as a result of COVID-19.”

The company has also created other new programs in-house, such as, a set of tools and resources for gauging “return-to-work readiness,” which is aimed at businesses and organizations that make up Salesforce’s customer base. Expect Salesforce management to discuss some of these new programs, and to help investors connect the dots on what they mean for its overall growth outlook.

3. Organizational Changes

The past few months have brought a number of changes to Salesforce, both related to the pandemic and not. One was the surprise departure of Keith Block, who had served as co-CEO alongside Marc Benioff and the head of Salesforce’s sales group. Gavin Patterson, who formerly led Salesforce International, was recently elevated to president and sales lead.

The performance of Salesforce’s sales division will be instrumental in navigating any demand impact tied to the pandemic. The company has said previously that it plans to invest aggressively in its sales group, particularly in international sales, which have served as a growth driver for the business. Investors will be closely watching for updates on Salesforce’s ability to navigate changes to the economic environment, to cross-sell across its growing lineup or products, and to shore up growth overall in an uncertain time for many of its customers. 

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