What To Expect From Salesforce Q2? Analyst Sees Mixed Business Trends

Oppenheimer analyst Brian Schwartz reiterated an Outperform rating on Salesforce, Inc. CRM with a price target of $235.

The earnings risk for CRM weighs slightly positive ahead of 2Q results despite his recent field checks pointing to mixed business trends for Salesforce and with investor expectations at higher levels for this earnings report. 

Positively, the analyst detected improvement in the demand environment and possibly stabilizing trends in the sales operations for Salesforce in 2Q. 

Also, the estimated bar is low for Salesforce this quarter. Schwartz thinks there are enough positives in the business trends and bookings performance detected in his field checks, Marketing Cloud customer survey, the set-ups, and read-throughs from company data analysis to raise our conviction in Salesforce displaying modest upside to consensus estimates for CRPO growth, subscription revenue, and operating margin in 2Q. 

Schwartz estimates 2Q total revenue of ~$8.52 billion (+10% year/year) and $1.90 in adjusted EPS. 

His research mosaic points to mixed business trends for CRM, and a modest upside to the CRPO billings, revenue, and margin consensus estimates this quarter. 

The analyst's private company checks were more upbeat on demand and performance, potentially stabilizing trends in the sales organization, better pipeline momentum, and stability in Salesforce's operations, leading to increasing optimism for the second half of FY24 and continued focus on cost savings initiatives at Salesforce. 

Schwartz's field checks during 2Q detected good T&E cost discipline for the Dreamforce conference. A noticeable downshift in the open positions trend line Y/Y at Salesforce has also occurred. Management is sustaining a higher cost discipline to the business, and the data points support an upward bias to consensus operating margin estimates for CRM. 

The analyst expects 2Q results to exceed a low bar. Beyond 2Q, easier Y/Y comparisons should improve the growth optics and help support a cyclical reacceleration at a higher profit margin self-help story in the second half of FY24.

Price Action: CRM shares traded lower by 0.52% at $208.04 on the last check Thursday.