Salesforce Inc. gained about 7% in extended trading after giving a profit forecast for the current quarter that topped analysts’ estimates, showing strong momentum in its cost-cutting campaign.
Earnings, excluding some items, will be about $2.26 a share in the period ending in January, the San Francisco-based software giant said Wednesday in a statement. Analysts, on average, projected $2.17. Revenue will be from $9.18 billion to $9.23 billion, compared with analysts’ average estimate of $9.22 billion, according to data compiled by Bloomberg. Current remaining performance obligations, a measure of contracted sales, will increase about 10%, in line with estimates.
Salesforce Chief Executive Officer Marc Benioff pleased Wall Street earlier this year by rapidly expanding profit margins, but investors are concerned the focus on cost-cutting has come at the expense of revenue growth, which has dipped to 11% the past three quarters. The company, which is the market leader in customer relations management software, is hoping that new artificial intelligence features and a rare price hike will help reverse that trend.
As part of its profit-expansion campaign, Salesforce has focused on reducing expenses associated with sales and marketing. One way to cut those costs is by expanding self-service purchasing of its software. Last week, the company announced that its best-known products would be available to buy through the marketplace of Amazon.com Inc.’s cloud-computing unit, Amazon Web Services.
The company said it had a full-time workforce of 70,843 at the end of the quarter, an 11% decline from the period a year earlier. Salesforce announced job cuts as part of a restructuring earlier in 2023, though in September said it would hire more than 3,000 new workers, in part to capitalize on interest in AI.
“They’ve found a brand new religion in terms of higher operating margins,” Anurag Rana, a Bloomberg Intelligence senior analyst, said in an interview on Bloomberg Television. The suppressed, but stable, sales growth isn’t bad as “we are still in a phase where money is being allocated at the expense of some of these software firms,” he said.
Shares reached a high of $249.09 in extended trading after closing at $230.35 in New York. The stock has jumped 74% this year through the close, although most of that rally happened in the first half of 2023 during pressure to boost profit from a cadre of activist investors.
In the fiscal third quarter, revenue increased 11% to $8.72 billion, in line with estimates. Profit, excluding some items, was $2.11 a share in the period ended Oct. 31. Analysts, on average, estimated $2.06. Adjusted operating margin was 31%.
“Over the last year we have transformed the company, enabling us to deliver another quarter of strong profitable growth,” Chief Financial Officer Amy Weaver said in the statement.
(Updates with comments from analyst in the sixth paragraph.)
